Rare Earth Magnet Security Act of 2025
- Bill Number
- H.R. 1496
- Origin Chamber
- House
- Congress
- 119th Congress, Session 1
- Policy Area
- Taxation
- Status
- Introduced
- Latest Action
- 2025-02-21: Referred to the House Committee on Ways and Means.
- Last Updated
- 2026-04-22T08:07:36Z
AI-Generated Summary
Purpose
The Rare Earth Magnet Security Act of 2025 aims to promote domestic production of high-performance rare earth magnets, which are critical components in technologies like electric vehicles, wind turbines, and defense systems. By providing a tax credit, the legislation seeks to strengthen U.S. supply chains, reduce reliance on foreign sources (especially from non-allied nations), and enhance national security.
Key Provisions
- Tax Credit Establishment: Adds a new Section 45BB to the Internal Revenue Code (IRC), offering a credit for rare earth magnets manufactured or produced in the U.S. and sold to an unrelated person (or related person under certain elections). The credit is part of the general business credit under IRC Section 38.
- Credit Amounts: $20 per kilogram for magnets meeting basic criteria; $30 per kilogram if at least 90% of the component rare earth materials (e.g., neodymium, dysprosium) by weight are produced in the U.S.
- Phase-Out Schedule: The credit reduces for magnets produced after December 31, 2034—70% in 2035, 35% in 2036-2037, and 0% after 2037.
- Definitions:
- Rare Earth Magnet: A permanent magnet with high resistance to demagnetization (intrinsic coercivity of 10 kOe or higher at 68°F) made from specific alloys, such as neodymium-iron-boron (possibly with praseodymium, terbium, or dysprosium) or samarium-cobalt (possibly with gadolinium).
- Component Rare Earth Materials: Includes neodymium, praseodymium, dysprosium, terbium, samarium, gadolinium, and cobalt.
- Manufacturing: Covers processes like milling, pressing, sintering, and recycling of materials.
- Non-Allied Foreign Nation: Refers to "covered nations" under U.S. defense law (e.g., nations posing security risks, like China).
- Restrictions and Exceptions:
- No credit if any component rare earth material comes from a non-allied foreign nation, except for dysprosium, terbium, samarium, and gadolinium until January 1, 2027.
- Credit only applies to magnets produced in the taxpayer's regular trade or business.
- Exception for "eligible manufacturers" (those with grants or contracts from the Department of Energy or Defense) to qualify lower-coercivity magnets if they commit to building domestic facilities with national security benefits.
- Elective Payment Option: Taxpayers can elect to receive the credit as a direct payment against taxes owed, treated as made on the tax return due date or filing date.
- Effective Date: Applies to taxable years beginning after December 31, 2024.
Significant Changes to Existing Law
- Introduces a new targeted tax incentive under the IRC, specifically for rare earth magnet production, which did not previously exist. This expands the general business credit (Section 38) by adding a 42nd category.
- Amends the table of sections in the IRC to include the new Section 45BB.
- No direct repeals or modifications to prior laws, but it builds on existing definitions (e.g., from IRC Section 638 for "United States" and defense code for "non-allied foreign nation").
Potential Impacts
- Government Agencies: The Internal Revenue Service (IRS) will administer the credit, including elections, verifications to prevent fraud, and phase-out calculations, potentially increasing administrative workload. The Departments of Energy and Defense may support eligible manufacturers through grants or contracts, influencing federal spending on critical materials.
- Citizens and Businesses: Encourages investment in U.S. manufacturing, potentially creating jobs in mining, processing, and magnet production sectors. Taxpayers (manufacturers) benefit from credits or direct payments, lowering production costs and making domestic magnets more competitive.
- International Relations: Reduces U.S. dependence on imports from non-allied nations (e.g., China, which dominates global rare earth supply), potentially straining trade ties but strengthening alliances with domestic or friendly suppliers. Could enhance U.S. leverage in global tech and defense supply chains.
Main Stakeholders Affected
- Manufacturers and Producers: Primary beneficiaries, including companies involved in rare earth mining, material processing, and magnet fabrication; they gain financial incentives but face sourcing restrictions.
- Taxpayers and Businesses: Those in related industries (e.g., electronics, renewables, defense) may see indirect benefits from a more secure supply chain.
- Government Entities: IRS for tax enforcement; Departments of Energy and Defense for grant/contract oversight and national security assessments.
- Consumers and End-Users: Industries relying on magnets (e.g., automotive, aerospace) could experience more stable pricing and availability of U.S.-made components.
Notable Legal, Constitutional, or Political Implications
- Legal: The credit's anti-fraud measures (e.g., Secretary's registration requirements) and sourcing restrictions align with existing tax and trade laws, but could lead to disputes over "non-allied foreign nation" classifications or coercivity exceptions. The elective payment treats credits as tax payments, similar to provisions in other green energy incentives, potentially simplifying access for smaller firms.
- Constitutional: No apparent challenges; it falls under Congress's taxing and spending powers (Article I, Section 8) to promote commerce and national security.
- Political: Bipartisan sponsorship (from both parties) signals broad support for supply chain resilience amid geopolitical tensions. The phase-out encourages long-term industry growth without permanent subsidies, but delayed restrictions for certain materials provide flexibility during supply transitions.
This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.
Sponsor
Rep. Reschenthaler, Guy [R-PA-14]
Cosponsors (29)
Rep. Swalwell, Eric [D-CA-14], Rep. Hudson, Richard [R-NC-9], Rep. Lee, Susie [D-NV-3], Rep. Calvert, Ken [R-CA-41], Rep. Castor, Kathy [D-FL-14], Rep. Obernolte, Jay [R-CA-23], Rep. Tonko, Paul [D-NY-20], Rep. Moolenaar, John R. [R-MI-2], Rep. Deluzio, Christopher R. [D-PA-17], Rep. Meuser, Daniel [R-PA-9], Rep. Panetta, Jimmy [D-CA-19], Rep. Mills, Cory [R-FL-7], Rep. Houlahan, Chrissy [D-PA-6], Rep. Krishnamoorthi, Raja [D-IL-8], Rep. Valadao, David G. [R-CA-22], Rep. Veasey, Marc A. [D-TX-33], Rep. Finstad, Brad [R-MN-1], Rep. Craig, Angie [D-MN-2], Rep. Morrison, Kelly [D-MN-3], Rep. McCollum, Betty [D-MN-4], Rep. Garamendi, John [D-CA-8], Rep. Stauber, Pete [R-MN-8], Rep. Davids, Sharice [D-KS-3], Rep. Fleischmann, Charles J. "Chuck" [R-TN-3], Rep. Gottheimer, Josh [D-NJ-5], Rep. Horsford, Steven [D-NV-4], Rep. Carson, André [D-IN-7], Rep. Fedorchak, Julie [R-ND-At Large], Rep. Jackson, Jonathan L. [D-IL-1]
Recent Actions
- 2025-02-21: Referred to the House Committee on Ways and Means.
- 2025-02-21: Introduced in House
- 2025-02-21: Introduced in House
Bill Versions
- Rare Earth Magnet Security Act of 2025 — issued 2025-02-21 — PDF (9 pages)