By: Kapil Handa, Partner CPA

 

On August 16, 2022, President Biden signed into law the inflation reduction act (IRA) of 2022. The law primarily handles changes to the exiting tax laws, lowers energy costs, lowers healthcare costs, and aims to reduce carbon emissions by 40% before the year 2030.

TAXES AND IRS FUNDING

15% Corporate Alternative Minimum Tax
Starting in 2023, 15% corporate alternative minimum tax will be applied to covered corporations with stocks listed on established stock exchange and annual income  of at least $1billion for any three taxable years.

1% Excise Tax on Stock Repurchases
Starting in 2023, there will be a 1% nondeductible excise tax based on the fair market value of all stock repurchases by United States public companies. Listed companies are able to buy back their stock from the open market or directly from the current shareholders. However, there are some exceptions to the 1% excise tax rule, including:

• A repurchase that is part of a nontaxable reorganization.
• Repurchased stock (or stock of equal value) that is contributed to an employer-sponsored retirement plan or ESOP.
• When the total value of repurchased stock in a tax year does not exceed $1 million.
• A transaction allowed under regulations for repurchases by a dealer in securities in the ordinary course of business.
• Repurchases by regulated investment companies or real estate investment trusts.
• Repurchases treated as a dividend for tax purposes.

Additional Internal Revenue Service (IRS) Funding
The IRS will receive an additional $79 billion in funding to clear the backlog of unprocessed tax returns that rose to approximately 13 million in 2022. The funding will also be used to hire more enforcement agents and invest in businesses systems and technology.

CREDITS

Clean vehicle credits
The clean vehicle credit has been extended until the end of 2032,creating new credits for previously owned clean vehicles. Limitations apply based on the retail price and adjusted gross income (AGI) of the taxpayer. For single or married filing separately taxpayers, the AGI limit is $150,000 and for married filing jointly, the AGI limit is $300,000. Additional credit limitations include:

• Up to $7,500 for purchase of new qualified vehicles
• Up to $40,000 for vehicles over 14,000 pounds
• The lesser of 30 percent of the price of used electric vehicles or $4,000

Research credit for small businesses
The IRA increases the maximum amount a qualified small business can claim as a payroll tax credit from $250,000 to $500,000 starting January 1, 2023.

Energy efficient home improvement credit
Starting in 2023, eligible home improvements made during the year will qualify for a 30% credit.

The lifetime limit of $500 will be replaced with an  annual limit of $1,200.

Residential clean energy credit
The residential clean energy credit has been extended through 2034. That will phase out as below:

• 30 percent for 2022-2032
• 26 percent for 2033
• 22 percent for 2034

HEALTHCARE COSTS

• The IRA extended the Affordable Care Act (ACA) for an additional three years through 2025. Therefore consumers may continue to buy health insurance with lower premiums through the Health Insurance Marketplace.
• The Medicare program will be allowed to negotiate lower prescription drug premiums with the drug manufacturers, helping to reduce the cost of many single sourced drugs for the consumer.

CONCLUSION

The inflation reduction act of 2022 aims to lower energy costs, healthcare costs, carbon emissions, and make changes to tax laws. For case-specific questions or help noting how the new law will affect your business, contact the Chugh, LLP accounting team.