The Inflation Reduction Act was signed into law in August 2022. The Act was promoted as an effort to slow inflation, which is to be seen. However, the Act will affect taxes for many and could impact how your investments perform.
But what exactly is the Inflation Reduction Act, and what does it change?
What Is the Inflation Reduction Act?
The Inflation Reduction Act was signed into law in mid-2022 and was billed as an answer to increasing inflation. However, the Act itself is more geared toward social and environmental changes across the United States as well as bolstering the power of the Internal Revenue Service. Here are the key points on the Act’s agenda.
Minimum Corporate Tax Rate
The Inflation Reduction Act comes with a significant amount of spending. This includes spending on increased tax enforcement, prescription drug price reform, an Affordable Care Act extension, and climate change reform.
In an effort to cover these expenses, the Act set a 15% floor tax rate on corporations that earn $1 billion in income annually. Corporations will also be required to pay a 1% excise tax on any stock buybacks.
Prescription Drug Price Reform
The act allows Medicare to renegotiate the prices of prescription drugs for Medicare recipients. The goal here is for Medicare recipients to have a $2,000 maximum out-of-pocket expense for prescription medications by 2025.
One of the most significant areas of spending in the Inflation Reduction Act is tax enforcement. The bill will invest $80 billion in the IRS over the next 10 years. The IRS plans to use this money to hire new employees that will be capable of performing audits and other duties for the IRS, as the agency has said for years it is understaffed and underfunded.
Nonetheless, the increased spending on tax enforcement has been a significant point of contention for many experts as it relates to the Inflation Reduction Act.
Affordable Care Act Extension
The Affordable Care Act (ACA) provides subsidies on insurance premiums for many American families. However, these subsidies were scheduled to come to an end at the end of 2022.
Under the Inflation Reduction Act, ACA subsidies have been extended until at least the end of 2025. This will have an impact on approximately 3 million Americans.
Climate Change Investments
Climate change was also a major part of the Inflation Reduction Act. The Bill aims to slow climate change by investing in clean energy technologies and providing subsidies for consumers and businesses who decide to install clean energy systems. This includes subsidies for products like solar panels and wind turbines.
We’re Here to Help
As these changes take hold, you may realize noticeable differences in your tax burden or investment returns. It’s best to work with a professional to navigate these changes. Call the Law Offices of Lawrence Israeloff at (516) 537-4440 today to discuss your tax and financial planning needs.