September 1, 2022 3:46 am

Inflation Reduction Act of 2022

A massive new tax law costing $739 billion was enacted to promote green energy, aid Medicare recipients, and increase funding for the IRS (P.L. 117-169). It was signed into law on August 16, 2022. To pay for the measure, the key provision is a 15% corporate alternative minimum tax on book income of businesses with average annual earnings over $1 billion in the 3 prior years (about 200 companies in all) and a 1% excise tax on stock buybacks from certain publicly-traded companies. These two revenue raisers do not directly impact individuals, but may have indirect consequences.

The following is a brief overview of the tax provisions specifically for individuals:

  • Extension of the premium tax credit. Individuals with household income over 400% of the federal poverty line in the previous year who purchase their health coverage from a government Marketplace may qualify for the premium tax credit through 2025. The amount of the required contribution toward premiums for this coverage is maintained at the 2022 level for 2023—0% to 8.5% of household income.
  • Extension of the home energy credits. The name of the nonbusiness energy credit is changed to the credit for energy-efficient home improvements and the credit is greatly modified. The credit is increased starting in 2023 to 30% of eligible expenses, the lifetime cap is replaced by an annual $1,200 cap, and the list if eligible expenditures are expanded to include home energy audits and electrical panel upgrades (but roofs no longer qualify). The residential clean energy credit is extended through 2034 for solar, wind, geothermal, and biomass fuel, and is expanded to include battery storage technology.
  • Expansion of credits for clean energy vehicles. Starting in 2023, the $7,500 credit applies to a qualified new clean vehicle (electric vehicle, plug-in hybrid vehicle, and hydrogen fuel cell vehicle), provided certain North America assembly requirements are met. There’s a new cap on vehicle cost and a new income limit on eligibility. The 200,000-vehicle manufacturer cap is eliminated. There’s also a new credit for buying a pre-owned clean vehicle. The credit is the lesser of $4,000 or 30% of the purchase price. Again there’s a cap on the vehicle cost as well as income limits.

The IRS was given $80 billion in funding, part of which is supposed to be used for enforcement. While Treasury Secretary Yellen promised that households with income below $400,000 and small businesses won’t see an increase in audit rates, there is no way to guarantee there will not be more scrutiny of all taxpayers.

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Tax Glossary

Salvage value

The estimated value of an asset at the end of its useful life. Salvage value is ignored by ACRS and MACRS rules.

More terms