Tax Education

Summary of the Tax Provisions of the Inflation Reduction Act

While it can be difficult to identify how exactly it might reduce inflation, The Inflation Reduction Act includes several tax provisions that could have an impact on individuals, families, and businesses. The new policy includes tax credits for clean energy, crackdowns on tax evasion from high-income earners and corporations by the Internal Revenue Service, and a minimum corporate tax.

Tax Provisions for Clean Energy

Clean energy makes up a large portion of the funding and tax provisions of the Inflation Reduction Act. The new policy allocates almost $369 billion to support clean energy initiatives, including:

  • Energy security
  • Carbon emissions reduction
  • Energy innovation
  • Environmental justice
  • Support for underserved communities in energy alternatives
  • Incentives to develop and produce low-carbon emission technologies
  • Support for conventional energy conversion to clean energy alternatives

The IRA also offers electric vehicle owners and customers individual incentives and tax credits to encourage more Americans to go electric. Additional funding would support the research and development of alternative clean fuels for cars, homes, and businesses.

Who Will See an Increased Tax Rate?

Certain groups will pay more in taxes among the tax provisions of the Inflation Reduction Act. The IRA includes additional language to increase government tax revenue with new tax provisions, including:

  • Imposing a minimum tax of 15% on corporate earnings for corporations with $1 billion or more in profits
  • Adding a 1% excise tax on stock buybacks
  • Raising the Superfund tax on oil and petroleum products

While corporations may see higher tax responsibilities due to the implementation of the IRA, individuals could take advantage of several tax credits to ease their tax burdens.

For instance, the IRA extends the limitation on pass-through business losses originally enacted in the Tax Cuts and Jobs Act (TCJA) of 2017. Pass-through businesses allow sole proprietors, S-corporations, and partnerships to bypass separate corporate tax reporting and report their business income on their personal tax returns. The extension runs through 2028.

Additionally, the IRA extends health insurance premium tax credits through 2025. These tax credits, originally established in the American Rescue Plan Act (ARPA), subsidize healthcare costs for low-income households and allow higher-income families to qualify for health insurance tax credits.

Other Key Parts of the Inflation Reduction Act

The Inflation Reduction Act doesn’t just adjust taxes. Other aspects of the policy bolster the strength of the IRS to hire a larger tax auditing force to pursue individuals and corporations using tax loopholes to avoid paying taxes.

The clean energy aspects of the IRA will reduce carbon emissions across the country by an estimated 40% by 2030. Besides revitalizing the clean energy industry, the IRA allows Medicare to negotiate directly with pharmaceutical companies on drug prices. Additionally, they can ensure that Medicare recipients pay a maximum out-of-pocket (MOOP) cost of $2,000 per year.

Despite the name, the Inflation Reduction Act may not offer much relief soon in reducing the price of goods. However, government economists from the Congressional Budget Office claim the IRA could reduce the deficit by around $100 billion in nine years.

Contact Levy & Associates Tax Consultants for Accounting and Tax Services For more information about the tax provisions of the Inflation Reduction Act, call Levy & Associates Tax Consultants at 1-800-TAX-LEVY or contact us online. 

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