The Inflation Reduction Act, signed into law on August 16, 2022, includes health-care and energy-related provisions, a new corporate alternative minimum tax, and an excise tax on certain corporate stock buybacks. The IRS received additional funding. This is a short discussion of some of the significant provisions of the Act. There will be more posts to come.
The legislation authorizes the Department of Health and Human Services to negotiate Medicare prices for certain high-priced, single-source drugs. This provision will initially include ten of the most expensive drugs, and the negotiated prices will not take effect until 2026. Annually additional medications will be added.
Starting in 2025, a $2,000 annual cap (adjusted for inflation) will apply to out-of-pocket costs for Medicare Part D prescription drugs.
Deductibles will not apply to covered insulin products under Medicare Part D or Part B for insulin furnished through durable medical equipment starting in 2023. The Act capped the appropriate copayment for covered insulin products at $35 for a one-month supply.
A high-deductible health plan can provide that the deductible does not apply to selected insulin products starting in 2023
The Act extended Affordable Care Act subsidies (scheduled to expire at the end of 2022) that improved affordability and reduced health insurance premiums through 2025. Indexing of percentage contribution rates used in determining a taxpayer's required share of premiums is delayed until after 2025, preventing more significant premium increases.
Additionally, those above 400% of the federal poverty line household income remain eligible for the premium tax credit through 2025.
Energy-Related Tax Credits
Many current energy-related tax credits are modified and extended, and a few new credits are added. Many of the credits are available to businesses, and others are available to individuals. The following two credits are substantial revisions and extensions of an existing tax credit for electric vehicles.
A tax credit of up to $7,500 is available to purchase new clean electric vehicles meeting specific requirements starting in 2023. The credit is not available for vehicles with a manufacturer's suggested retail price higher than $80,000 for sports utility vehicles and pickups and $55,000 for other vehicles. The credit is not available if the modified adjusted gross income (MAGI) of the purchaser exceeds $150,000 ($300,000 for joint filers and surviving spouses, $225,000 for heads of household). Starting in 2024, an individual can elect to transfer the credit to the dealer as payment for the vehicle.
Similarly, a tax credit of up to $4,000 is available for purchasing certain previously owned clean electric vehicles from a dealer. The credit is unavailable for vehicles with a sales price exceeding $25,000. The credit is unavailable if the purchaser's MAGI exceeds $75,000 ($150,000 for joint filers and surviving spouses, $75,000 for heads of household). An individual can elect to transfer the credit to the dealer as payment for the vehicle.
Increased Funding for the IRS
Substantial additional funds are provided to the IRS to help fund operations and business systems modernization and to improve enforcement of tax laws. More to come on this topic in a future post.