Build Back Better was re-named in the Senate as the Inflation Reduction Act (IRA) of 2022. This slimmed-down version of Biden’s tax, climate, and drug price agenda passed the House and was signed by the President in August 2022. The bill spends approximately $437 billion on climate, health subsidies, and drought relief, while raising approximately $740 billion in revenue over 10 years. Many provisions previously discussed did not make the final bill, including no increase to the $10,000 limit on the individual itemized deduction for state and local tax (SALT cap).
How does this new legislation impact small business and individuals?
Much of the legislation is focused on clean energy provisions, IRS funding, and minimum tax for large (over $1 billion in book income) C-Corporations. The items that could impact small businesses and individuals include:
• Increased research credit allowed for small business against payroll tax liability after 2022
• Extended electric vehicle (EV) credit
• Extended energy efficient home credit
• Extended limitation on excess business losses for 2021 through 2028
• Beginning in 2026, drug prices will be negotiated by Medicare for the first time, with a tax penalty imposed on drug companies failing to abide by new price.
• $2,000 per year cap on out-of-pocket costs for seniors enrolled in a Medicare drug plan, starting in 2025.
• Three-year extension of subsidies for Affordable Care Act premiums, preventing expiration of subsidies in 2023.
More on the EV Credit changes
Starting in 2023, used EVs can qualify for up to $4,000 credit, as well as new EVs up to a $7,500 credit. Limits are imposed based on manufacturer supply chain sourcing, to encourage vehicle production in the US. Additionally, the credit will only be available to individuals earning less than $150,000 per year, or married couples earning less than $300,000, and will only be offered on electric cars costing less than $55,000 and electric trucks and SUVs costing less than $80,000.
Updates to Efficient Home Credits
A credit is allowed for a percentage of certain expenses for nonbusiness energy-saving property placed in service before 2033. The IRA repeals the energy efficient home lifetime credit limitation and instead limits the credit to $1,200 per taxpayer, per year. There are additional annual limits based on types of property. Also, the credit is further increased by up to $150 for amounts spent for a home energy audit.
How will the IRS spend the additional funds?
Currently, it is expected the IRS will update IT contracts and systems, hire more staff to improve services, and increase audits to generate more revenues. Per Treasury Secretary Janet Yellen in a letter to Commissioner Chuck Rettig, the agency is not to increase audit frequency for anyone making less than $400,000 or small businesses.
Please contact Stanfield & O’Dell if you have questions on how this legislation might impact you.