On August 16 President Biden signed the Inflation Reduction Act of 2022 (P.L. 117-169; H.R. 5376). This was enacted via the budget reconciliation process so only 51 votes were needed to pass this in the Senate. And there are various restrictions on what can go in the bill and it can’t lose revenue in the 11th year out and beyond. So the numerous energy credits added or expanded in this law generally end expire 12/31/32. And this law’s official name is “an act to provide for reconciliation pursuant to title II of S. Con. Res. 14” due to the required process (has to have the word reconciliation in it). The unofficial name that you’ll hear is Inflation Reduction Act of 2022 or IRA (which might be confusing).
Single-spaced, this act is 273 pages with 128 pages – or 47% related to tax law changes (these are in Title I of the Act but a lot of these pages are in Subtitle B on prescription drug pricing reform (which tax-wise only includes a minor change to IRC §223 on health savings accounts and a new drug excise tax at §5000D).
How will this bill reduce inflation? Likely via:
- Lowering of drug prices such as a cap of $2,000/year if the person is on Medicare (not sure it that means drug prices might increase elsewhere).
- Possible lowering of energy pries and increasing supply.
- Continuation of access to the Premium Tax Credit (PTC) for more households (even if income exceeds 400% of the federal poverty line) through 2025 (continues beyond 2021 and 2022).
- New energy tax credits will lower the cost if you buy the right clean energy car or home energy savings device and likely the credit will be more than prices might be increased by the manufacturer and seller.
- Deficit reduction – about $300 billion over 10 years which should also mean less interest expense paid by the government.
- 15% alternative minimum tax for corporations with average annual adjusted financial statement income in any 3-year prior period greater than $1 billion. The Joint Committee on Taxation estimates this could affect about 150 corporations. A similar version was in the House-passed Build Back Better Act (11/19/21) but that also include various international tax changes not in the IRA. This is the largest revenue raiser at $222 billion over 10 years (per JCT). Like the old corporate AMT, this AMT creates a minimum tax credit (IRC §53 modified) so is really a prepayment of future regular income tax. But some of these corporations may be owing this AMT for many years before using an MTC.
- 1% excise tax on corporate stock buybacks if over $1 million (and a few other exceptions). This is estimated to raise $74 billion over 10 years.
- IRS enforcement with $80 billion additional funds over 10 years. CBO estimates this will generate $124 billion over 10 years. I’ll have more on this later.
- Extend the §461(l) loss limitation added by the TCJA through 2028. The BBB passed in the House last November would have made this permanent and restricted use of the unusable annual loss. The CARES Act in March 2020 postponed the effective date by three years. The American Rescue Plan Act (ARPA) in March 2021 added one more year to its life so with the IRA, this returns to a n 8-year rule (2021 through 2028) provision as intended by the TCJA. JCT estimates it will raise $53 billion over 10 years.
- Reinstatement of Superfund taxes – estimated to generate $12 billion over 10 years.
Tax savings opportunities for individuals and small businesses:
- If you otherwise qualify for the PTC but have household income above 400% of the federal poverty line, getting a PTC to help reduce insurance costs is a savings.
- Energy credits for individuals such as: [I have links here to track change versions I created]
- Doubling of the amount of the research credit (now up to $500,000) that can be applied against payroll taxes by eligible start-up businesses (changes to IRC §41 and §3111).
- Possible monetization of some of the business energy credits. New §6418 will let businesses transfer specified credits. I assume we might see some ways that individuals can buy and use these credits in the future.
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