President Joe Biden recently signed the Inflation Reduction Act of 2022 into law. The new legislation intends to curb inflation by decreasing the amount of money the government spends, imposing new streams of revenue and lowering both healthcare and energy bills for Americans.
The 755-page bill has three major provisions. So, to help break it down, let’s take a look at these key provisions and see what each entails.
The law will impact individuals and families by:
- Not imposing new taxes on families who earn less than $400,000
- Extending the limitation on business loss enacted in the 2017 Tax Cuts and Jobs Act — which adjusted certain deductions, expenses and other tax-specific items that businesses manage — for two more years through 2028
- Continuing the health insurance premium tax credit — a refundable credit that assists eligible families and individuals in covering their health insurance premiums
On the corporate side, this legislation creates:
- New taxes for businesses that repurchase their own stock
- A 1% excise tax on the value of the stock repurchased starting December 31, 2022
- A 15% minimum tax on corporations with $1 billion of book income versus tax income
Read our blog post, 5-Point Checklist for Managing Inflation In Your Business, for ideas on budgeting, debt management, tax planning and more.
The new bill also makes provisions in the healthcare space, as it allows Medicare to negotiate the price of prescription drugs to make them more affordable. It also extends Obamacare for three more years through 2025.
Additionally, the act will:
- Cap drug costs to an estimated $4,000 or less in 2024, and $2,000 per year in 2025
- Provide free vaccines for senior citizens
- Cap insulin costs to $35 for individuals enrolled in Medicare
Climate and Energy Provisions
Along with tax and healthcare provisions, the new bill also strives to further climate and clean energy initiatives. $369 billion is set to be spent on climate and green energy to lower energy costs, increase cleaner energy production and reduce carbon emissions by 40% in 2030.
Home Energy Improvements
If your property has energy-efficient systems in place like solar panels, solar water heaters, geothermal heat pumps or any other green system, you’re in luck. The Residential Energy Efficient Property Credit, now known as the Residential Clean Energy Credit, is extended to 2034. This credit gives energy-efficient property owners a credit that equals the applicable percentage of the cost of their qualified property.
It's important to note that this credit will increase to 30% from 2022 to 2032, fall back to 26% for 2033, and then to 22% for 2034.
Clean Vehicle Tax Credit
Under the Inflation Reduction Act, a $7,500 tax credit will be given to qualified buyers who buy a new electric vehicle in the next 10 years. If you purchase a used electric vehicle, a maximum $4,000 tax credit will be awarded, but cost restrictions and income limits come into play.
In addition to the provisions outlined above, the IRS will be receiving $80 billion over the next 10 years to hire more agents and to upgrade their technology, with the intention of boosting revenue collection by auditing high income earners.
Have questions about the Inflation Reduction Act and how it will impact you or your organization? Contact us here or call 800.899.4623.