S. 4994: Our Nation’s Supply chain for Healthcare has Over Reliance Elsewhere Act

This bill would create new federal tax incentives for companies that make certain medical products in the United States. In simple terms, it tries to encourage more domestic production of drugs, medical devices, and some related ingredients and emergency countermeasures.

New tax credit for manufacturing medical products in the U.S.

The bill adds a new income tax credit for businesses that earn income from manufacturing qualifying medical products in the United States. The credit would be equal to 10.5% of the business’s qualifying manufacturing income, up to a limit based on the business’s taxable income. It would also be capped at 50% of the company’s W-2 wages tied to that domestic manufacturing activity.

The products covered include:

• certain drugs, including biologic products,
• certain medical devices,
• active pharmaceutical ingredients used to make those drugs or devices, and
• certain covered countermeasures.

To qualify, the product must be manufactured or produced by the taxpayer in whole or in significant part in the United States, and it must be on certain federal or defense-related lists of essential or critical medical items.

The credit would generally apply to taxable years beginning after December 31, 2026.

New tax credit for advanced manufacturing equipment

The bill would also create an investment tax credit for certain advanced equipment used to manufacture qualifying medical products. This credit would help offset the cost of buying and placing in service machinery or equipment used for this kind of production.

The credit rate would be:

• 30% for equipment placed in service before January 1, 2031,
• 20% for equipment placed in service during 2031,
• 10% for equipment placed in service during 2032, and
• 0% after December 31, 2032.

To qualify, the equipment must be used in the U.S. to manufacture specified medical products, must be identified by the Treasury Secretary after consultation with HHS, and must be depreciable property.

New tax credit for EPA compliance equipment

The bill would create another investment tax credit for equipment used in medical manufacturing to meet environmental requirements, such as Clean Air Act emissions limits or Clean Water Act wastewater standards. This credit would apply only to equipment used by manufacturers of the covered medical products and only if the equipment is not already eligible for the advanced manufacturing equipment credit.

The credit rate would follow the same phase-down schedule:

• 30% before January 1, 2031,
• 20% during 2031,
• 10% during 2032, and
• 0% after December 31, 2032.

How the tax rules would work

The bill says these credits would be part of the existing federal business tax credit system and would generally be usable against regular income tax and alternative minimum tax. It also includes rules for partnerships, S corporations, trusts, estates, and corporate groups so the credits are allocated among owners or related companies. The Treasury Department would be required to issue regulations to carry out the rules and prevent abuse or fraud.

Reporting requirements

Beginning in 2027, several federal agencies would have to report annually to Congress on how the credits are being used and what effects they are having. Reports would come from:

• the IRS, on use of the credits,
• the Department of Veterans Affairs, on domestic procurement compliance,
• the Department of Defense, on domestic procurement compliance, and
• the FDA, on drug and device shortages.

Relevant Companies

None found