Inflation Reduction Act of 2022: What it Means for You and Your Taxes
The Inflation Reduction Act of 2022, which includes new tax provisions, extensions, and expansions of tax implications linked to energy-efficient tax benefits and healthcare benefits, was signed into law by the President of the United States. Here are some of the provisions of the Inflation Reduction Act and what they can entail for your taxes and you. If anything is unclear or if you need assistance with filing your taxes, don’t hesitate to contact TFX.TAX.
Energy-Efficient Tax Benefits
A portion of the tax bill will go to energy-efficient tax credit rebate programs that help consumers cover the cost of home energy, such as the Clean Vehicle Credit, the Alternative Fuel Vehicle Credit, and energy credits for your home.
Clean Vehicle Credit
The Inflation Reduction Act lowered the amount of electric vehicle tax credit people could claim for purchasing a new electric vehicle. Under the new law, people may be eligible for a tax credit up to $7,500 for purchasing a new electric vehicle. This is known as the Clean Vehicle Credit. Starting January 1, 2023, people purchasing used electric vehicles may be eligible for a tax credit up to the lesser of $4,000 or 30% of the sales price. Credits are a dollar-for-dollar reduction of taxes you owe, so you can save money on gas and taxes by purchasing an electric vehicle.
Some of the changes related to the Clean Vehicle Credit include:
The manufacturer limitation is jettisoned for vehicles sold after December 31, 2022
Necessitates final assembly in North America (effective instantly on August 17, 2022, unless you have entered a binding contract to purchase a new electric vehicle before August 16, 2022)
The manufacturer must be an authorized manufacturer
Manufacturer’s suggested retail prices for vans, sport utility vehicles, and pick-ups are restricted to $80,000 and other cars are regulated to $50,000
For new cars, modified adjusted gross income cannot surpass $300,000 married filing jointly, $225,000 Head of Household, $150,000 single
For secondhand cars, modified adjusted gross income cannot go over $150,000 married filing jointly, $112,500 head of household, $75,000 single
The only change in the law that is effective immediately starting on August 17, 2022 is that new electric vehicles must receive final assembly in North America. The changes related to electric vehicles are effective starting January 1, 2023, except for the requirement that new electric vehicles must receive final assembly in North America, which is effective immediately. The Inflation Reduction Act also includes an additional tax credit for business owners of up to $7,500 for new commercial clean cars put into operation after December 31, 2022.
Credit for Electric Chargers Installed at Your Home or Business
Before the Inflation Reduction Act, businesses and primary residences could receive a federal tax credit for charging stations for installing EV charging stations before January 1, 2022. The credit for charging stations installed prior to January 1, 2033, is extended by the new law.
Energy Credits Available for Your Home
Prior to the passage of the Inflation Reduction Act, individuals were eligible for credits of up to 10% of the cost of non-commercial energy property, such as windows, doors, and skylights, as well as residential energy property that was put into operation before January 1, 2022. If you put the property in use before January 1, 2033, you may now take the credit at a higher amount of up to 30%. The clause also restricts the credit to taxpayers per year and eliminates the previous lifetime credit cap.
Tax Credit for Solar Panels
Prior to the Inflation Reduction Act, the tax credit was equal to 26% of the cost of the domestic energy-efficient property, such as solar panels and solar water heaters. If you acquire energy-efficient equipment between January 1, 2022, and December 31, 2032, the credit has grown to 30% under the rule change.
Healthcare Tax Law Benefits
If health insurance is acquired through the Health Insurance Marketplace, the tax reform increases healthcare subsidies, further extending the advantages that were increased for 2021 and 2022 under the American Rescue Plan. If you don't get enough of a subsidy based on your income when you get health insurance in the Health Insurance Marketplace, it may also appear as a premium tax credit when you file your taxes. Healthcare subsidies can lower the cost of health insurance premiums you pay.
In general, people with households between 100% and 400% of the Federal Poverty Level are eligible for the Premium Tax Credit. However, under the American Rescue Plan, people with incomes over 400% of the Federal Poverty Level were only eligible for the Premium Tax Credit for the tax years 2021 and 2022. These advantages will remain available under the Inflation Reduction Act.
The law also sets a $2,000 annual ceiling on prescription drug out-of-pocket costs for Medicare recipients and gives Medicare the authority to bargain for some of the priciest medications available.
Corporate Tax Changes
For businesses with annual revenue of $1 billion or more, the minimum corporation tax rate is 15%, and repurchased stock is subject to a tax equal to 1% of fair market value.
The Inflation Reduction Act of 2022 is a sweeping piece of legislation that will change the way taxes are collected in the United States. It’s important to understand how this bill will impact you and your family, and that’s where TFX comes in. Our team of experts can help you navigate the new tax laws and make sure you’re taking advantage of all the deductions and credits available to you. Contact us today for more information or to get started on your tax return. We look forward to helping you save money under the Inflation Reduction Act!