In early August 2022, a reduced version of the Biden Administration’s tax reform, climate change, green energy, and social policy agenda was passed by both the House and Senate. On August 16, 2022, President Biden signed the $750 billion Inflation Reduction Act of 2022 into law. The numerous changes will require significant guidance from multiple federal agencies to implement. With one exception, the Act’s provisions will be effective beginning January 1, 2023. We have summarized some of the key provisions below, and as guidance is released, will continue to keep you updated on how the Inflation Reduction Act may affect you or your business.
The Biden Administration has indicated that the provisions of the bill will not increase taxes for those earning under $400,000.
Many proposals of the Biden tax reform agenda were not included and therefore not likely to be enacted in the near future.
- The bill creates a 15% corporate minimum tax for corporations with financial statement profits over $1 billion, effective in taxable years beginning after December 31, 2022.
- The bill doubles the refundable research and development tax credit for small businesses, from $250,000 to $500,000. The credit is against payroll taxes for post-2022 tax years.
- The bill invests $80 billion in the IRS over the next 10 years to be used for enforcement activities, customer service, and technology upgrades. This additional funding is anticipated to raise $124 billion in tax revenue.
- The current limitation for individuals on the deduction of excess business losses was extended for two years until December 31, 2028.
Energy Security and Climate Change Provisions
- The bill offers individuals and businesses the following credits and rebates for lowering energy costs –
- Clean energy and electric vehicle tax credits (including commercial vehicles)
- Credits for energy-efficient home improvements
- Solar tax credits
- Energy-efficient buildings
- The current $7,500 (maximum) credit for the purchase of an electric vehicle (EV) has been revised effective August 16, 2022. Unless subject to a binding purchase agreement prior to August 16th a vehicle must have a final assembly location in North America to qualify for the credit. The Department of Energy compiled a list of currently eligible vehicles: List of Vehicles with Final Assembly in North America. Effective in 2023, eligible vehicles (now including used EV’s) are subject to a price cap and taxpayers are subject to an income cap. For new vehicles, the materials used in the vehicle’s battery must meet certain country-related sourcing requirements. The current manufacturer unit sales cap is removed so certain GM and Tesla vehicles may qualify.
- For additional information on the Clean Vehicle Credit, continue reading: Inflation Reduction Act Restructures Alternative Fuel Vehicle Credit
Insurance and Prescription Drug Provisions
- The bill allows for Medicare to negotiate the price of certain prescription drugs and by 2025, it caps out-of-pocket drug costs at $2,000 for Medicare recipients.
- The bill extends the health insurance Premium Tax Credits in the Affordable Care Act (ACA) through 2025.
The Bill Does Not Include Changes to the Following
- Estate and gift tax exemption amounts or rates
- Tax rates on high earners
- Tax rates applicable to individuals on long-term capital gains
- Corporate income tax rate (21%)
- Qualified small business stock exclusion
- Like-kind exchange rules
- Taxation of carried interest
- Repeal or modification of the $10K deduction cap for state and local taxes
- Requirement to capitalize Research and Experimentation Costs effective January 1, 2022
The complete Inflation Reduction Act of 2022 bill can be found here: H.R.5376 – Inflation Reduction Act of 2022
Please contact us if you have any questions about how the bill may impact you or your business.