New Act Offers $30-per-Kilo Tax Credit for US-Made Rare Earth Magnets, Bans Materials from 'Non-Allied' Nations

The new Rare Earth Magnet Security Act of 2025 is laser-focused on one thing: getting critical magnet production out of overseas factories and into U.S. facilities, and it’s using a serious tax credit to make it happen. This isn’t about just reducing taxes; it’s about injecting cash directly into the hands of manufacturers who can meet some very strict sourcing rules.

The Cash Incentive: $20 to $30 Per Kilogram

If you manufacture specific, high-performance rare earth magnets (the kind that power everything from electric vehicles to fighter jets) in the U.S. and sell them, the bill offers a tax credit of $20 per kilogram produced. But here’s the kicker: if you can prove that 90% by weight of the materials used in that magnet were also sourced domestically, the credit jumps to $30 per kilogram. This domestic content bonus is a clear signal that the goal isn't just assembly; it’s building a whole new supply chain right here. For companies that qualify, the bill also allows them to treat this credit as an elective cash payment, meaning instead of just reducing their tax bill, they can get the money back directly—a huge boost to cash flow.

The Supply Chain Restriction: No Materials from 'Non-Allied Foreign Nations'

This is where things get complicated, and potentially expensive, for manufacturers. To claim any credit, the bill mandates that you generally cannot use any component rare earth material that originated in a “non-allied foreign nation.” This provision is designed to force a rapid decoupling from current global supply chains, which are heavily concentrated overseas. While the restriction on materials like dysprosium and terbium is delayed until January 1, 2027, the overall mandate means any company wanting this credit must immediately audit and potentially overhaul its entire sourcing strategy. If you’re a manufacturer relying on established, low-cost international sources, you have to choose: the credit, or your current supply chain.

The Real-World Impact: Costs and National Security

This legislation has dual aims: national security and economic development. By incentivizing domestic production, the U.S. aims to secure the supply of these essential components. For the average consumer, this could eventually mean more reliable access to products like EVs and advanced electronics, but it might come with an initial price tag. Building up a domestic supply chain from scratch is expensive, and those costs could trickle down to finished goods if domestic production costs exceed global market prices. For manufacturers who can’t meet the strict domestic content or sourcing requirements, they are effectively left out of this new financial incentive, potentially putting them at a competitive disadvantage against companies that successfully pivot to all-domestic sourcing.

The Defense Exception and the Sunset Clause

The bill includes a special carve-out for defense needs. The Secretary has the power to grant exceptions to the technical magnet standards if the manufacturer is working on a contract with the Department of Energy or Defense and commits to building a facility for magnets deemed to have “national security merit.” This gives the government significant discretionary authority to fast-track defense-related projects that might not meet the standard specifications. However, this credit isn't forever. It starts to phase out quickly after 2034, dropping to 70% in 2035 and 35% in 2036, before disappearing completely after December 31, 2037. This means companies need to move fast and invest heavily, knowing the primary financial incentive has a definitive expiration date.