On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 into law. The reconciliation bill was passed last month by both the Senate and House of Representatives with the intention to raise $450 billion to pay for deficit reduction, clean energy, and climate investments.
There are several components in the Inflation Reduction Act which include an investment of $80 billion over the next 10 years for the IRS tax to expand enforcement and compliance services. The Congressional Budget Office estimates that the IRS will collect $203 billion from this investment.
As it relates to corporate taxes, another component is to implement a 15% domestic tax, referred to as a corporate alternative minimum tax, on corporations with profits in excess of $1 billion. This refers to the 200 largest corporations currently paying less than the corporate tax rate. This provision would be effective for tax years beginning after December 31, 2022 and is expected to raise $313 billion.
Additionally, the bill includes a nondeductible 1% excise tax on publicly traded corporate stock repurchases which would be effective for stock buybacks after December 31, 2022. This is expected to raise $73 billion in revenue.
A note for small start-up businesses, the new law increases the cap on qualified research expenses eligible to offset payroll taxes from $250,000 to $500,000.
The bill extends the limitation on pass-through losses enacted in the 2017 Tax Cuts and Jobs Act for two years, through 2028. It also extends the expanded health insurance Premium Tax Credits provided in the American Rescue Plan Act. This includes allowing higher-income households to qualify for the credits and boosts the subsidy for lower-income households through the end of 2025.
It should be noted that the summary of the bill reports no new taxes on families making $400,000 or less, and there are no new taxes on small businesses.
Other provisions include numerous environmental and green energy tax credits for electricity produced from specified renewable sources, clean vehicles, clean fuels, investment in clean energy manufacturing, and energy security. The bill also includes prescription drug pricing reform which imposes a new excise tax on sales by drug manufacturers, producers, and importers of “designated drugs” during the time the manufacturer fails to enter into drug pricing agreements under the Social Security Act.
If you have any questions about how the Inflation Reduction Act will impact you or your business, please contact Amy Burns or any member of the Baker Holtz team for assistance at 616-458-1835.