Inflation has reared its ugly head long enough to inspire Congress to name a bill (whose main purpose is supposedly deficit reduction) “The Inflation Reduction Act of 2022.” As Shakespeare wrote, “A rose by any other name would smell as sweet.”
Signed into law on August 16, The Inflation Reduction Act of 2022 includes health-care and energy-related provisions, a new corporate alternative minimum tax, and an excise tax on certain corporate stock buybacks. Additional funding is also provided to the IRS. Some significant provisions in the Act are discussed below.1
The legislation authorizes the Department of Health and Human Services to negotiate Medicare prices for certain high-priced, single-source drugs. However, only 10 of the most expensive drugs will be chosen initially, and the negotiated prices will not take effect until 2026. Don’t take the delayed action to mean that Congress expects inflation to last another four years, though. It’s probably more the result of some clever stall tactics by some expensive lobbyists. For each of the years following 2026, additional negotiated drugs 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. Starting in 2023—finally, something that might offer more timely help—deductibles will not apply to covered insulin products under Medicare Part D or under Part B for insulin furnished through durable medical equipment. Also, the applicable copayment amount for covered insulin products will be capped at $35 for a one-month supply.
Starting in 2023, a high-deductible health plan can provide that the deductible does not apply to selected insulin products. Affordable Care Act subsidies that improve affordability and reduce health insurance premiums were scheduled to expire at the end of 2022. This Act extends these subsidies through 2025. Also, 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 with household incomes higher than 400% of the federal poverty line remain eligible for the premium tax credit through 2025.
Energy-Related Tax Credits
Many current energy-related tax credits have been modified and extended, and a few new credits have been added. Starting in 2023, for example, a tax credit of up to $7,500 is available for the purchase of new “clean electric” vehicles meeting certain requirements. The credit is not available, however, if the purchaser’s modified adjusted gross income (MAGI) exceeds $150,000. Similarly, a tax credit of up to $4,000 is available for the purchase of certain previously owned clean electric vehicles from a dealer.
Excise Tax on Repurchase of Stock
On a note more related to investments, for corporate stock repurchases after December 31, 2022, a new 1% excise tax will be imposed on the value of a covered corporation’s stock repurchases during the taxable year. A covered corporation means any domestic corporation whose stock is traded on an established securities market. There are several exceptions, but these are too detailed to explain here.
Increased Funding for the IRS
Last, but not least, the IRS is getting funds that seem wholly unrelated to attempts to reduce inflation. Substantial additional funds are provided to the IRS to help fund enforcement ($45.6 billion), operations support ($25.3 billion), and taxpayer services ($3.2 billion). There is also a $15-million initiative to fund a task force studying the potential creation of a free direct e-file program.2
We hope this quick summary of some key financially related aspects of The Inflation Reduction Act of 2022 will spare you from reading the entire legislation. If you feel that any part of the Act might affect your financial plans, please consult with your financial advisor.
“Inflation Reduction Act: What You Need to Know” (Broadridge Financial Solutions; August 17, 2022)
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