President Joe Biden signed the Inflation Reduction Act of 2022 (IRA) into law on August 16, 2022. The legislation aims to combat climate change, lower prescription drug costs, tax wealthy corporations, and more. Below are highlights of the major provisions.
Corporate Alternative Minimum Tax (AMT): Corporations that have an average annual adjusted financial statement income (AFSI) of $1 billion or more for a three-year period will be subjected to a new 15% tax rate. This provision will apply to taxable years beginning January 1, 2023. S corporations, regulated investment companies, and real estate investment trusts are exempt.
Stock Buy-Back Excise Tax: The IRA mandates a nondeductible 1% excise tax on purchases of corporate stock repurchases of $1 million or more by publicly traded companies. This provision does not apply to repurchases that are contributed to an employee pension or similar plan. The tax applies to stock repurchases made after December 31, 2022.
Internal Revenue Service (IRS) Enforcement: Approximately $80 billion has been allocated to the IRS over a ten-year period for tax enforcement, compliance, operation support, and modernization. In addition, the Treasury Inspector General will receive funds for Tax Administration, Office of Tax Policy, U.S. Tax Courts, and the Treasury Departmental Offices.
Prescription Drug Price Reform: The IRA will allow Medicare to negotiate the price of certain prescription drugs, lowering the cost beneficiaries pay for medication. Beginning in 2025, Medicare recipients will have a $2,000 cap on out-of-pocket prescription drug costs.
Additional Research Credit Against Payroll Tax for Small Business: Beginning January 1, 2023, small businesses under five years old with less than $5 million in gross receipts may apply for an additional research credit of up to $250,000 against Medicare tax. The credit cannot exceed the tax imposed for any calendar quarter.
Energy Security and Climate Change Investments: The IRA includes extensive investments in energy security and climate change programs in order to expand the availability of non-fossil fuel alternatives. The following are some of the incentives available to individuals and businesses:
- Extension and modification of energy credit
- Increase in energy credit for solar facilities placed in service in connection with low-income communities
- Extension of incentives for biodiesel, renewable diesel, and alternative fuels
- Extension, increase, and modifications of nonbusiness energy property credit
- Extension of residential clean energy credit
- Energy efficient commercial buildings deduction
- Extension, increase, and modifications of new energy efficient home credit
- Clean vehicle credit and credit for previously-owned qualified plug-in electric drive motor vehicles
- Credit for qualified commercial clean vehicles
- Alternative fuel refueling property credit
- Extension of the advanced energy project credit
- Advanced manufacturing production credit
- Clean electricity production credit
- Clean electricity investment credit
- Cost recovery for qualified facilities, qualified property, and energy storage technology
- Clean fuel production credit
Price Kong is here to help you navigate the Inflation Reduction Act. Please contact us at 602.776.6300 or [email protected].
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