President Biden signed into law the 2022 Inflation Reduction Act (the Act). The Act includes numerous tax provisions for individuals – most notably an array of new tax credits relating to energy efficient homes, businesses, and vehicles. It also provides several new healthcare and prescription drug benefits for individuals, including a $2,000 Medicare out-of-pocket cap for prescription drugs, a $35 Medicare monthly insulin cap, and a three-year extension of the expanded Affordable Care Act health insurance subsidy.
Here is a summary of the Act’s key provisions that may affect you, as individuals.
Extension, Increase, and Modifications of the Nonbusiness Energy Property Tax Credit (Renamed as the Energy Efficient Home Improvement Credit)
For years before 2022, a 10 percent tax credit, subject to a $500 per taxpayer lifetime limit, was available for qualified energy-efficiency improvements and expenditures for residential energy property on an individual’s primary residence.
The Act extends the credit through 2032. In addition, beginning in 2023, the Act modifies and expands the credit, by:
● increasing the credit rate to 30 percent and increasing the annual per-taxpayer limit from $600 to $1,200, with a $600 per-item limit;
● for geothermal and air source heat pumps and biomass stoves, there is an annual credit limit of $2,000, and limits for expenditures on windows and doors are also increased, while biomass stoves are now eligible for tax credits;
● allowing a 30 percent credit, of up to $150, for home energy audits.
Restoration of 30 Percent Residential Energy Efficient Tax Credit (Renamed the Residential Clean Energy Credit)
A tax credit is currently provided for the purchase of solar electric property, solar water heating property, fuel cells, geothermal heat pump property, small wind energy property, and qualified biomass fuel property. Initially, the credit rate was 30 percent through 2019. It was then reduced to 26 percent through 2022, and was scheduled to be reduced to 22 percent in 2023 before expiring at the end of that year.
The Act extends the credit through December 31, 2034, restoring the 30 percent credit rate, beginning in 2023 through 2032, and then reducing the credit rate to 26 percent in 2033 and 22 percent in 2034. Qualified battery storage technology is also added to the list of eligible property.
Alternative Fuel Refueling Property Credit
Through 2021, taxpayers were allowed a tax credit for the cost of any qualified alternative fuel vehicle refueling property installed at a taxpayer’s principal residence. The credit was equal to 30 percent of these costs, limited to $30,000 for businesses at each separate location with qualifying property, and $1,000 for residences. The Act extends this credit through December 31, 2032, and makes certain additional modifications.
Extension of Health Insurance Subsidy
A health insurance subsidy is available through a premium assistance credit for eligible individuals and families who purchase health insurance through Exchanges offered under the Patient Protection and Affordable Care Act (PPACA). The premium assistance credit is refundable and payable in advance directly to the insurer on the Exchange. Individuals with incomes exceeding 400 percent of the poverty level ($54,360 for a one-person household in 2022) are normally not eligible for these subsidies. However, legislation passed in 2021 eliminated this limitation for 2021 and 2022 so that anyone can qualify for the subsidy. That legislation also limited the percentage of a person’s income paid for health insurance under a PPACA plan to 8.5 percent of income. The Act extends these provisions through 2025.
Prescription Drug and Vaccine Cost Improvements
The Act –
- eliminates beneficiary cost-sharing above the annual out-of-pocket spending threshold under the Medicare prescription drug benefit beginning in 2024;
- caps Medicare annual out-of-pocket spending for prescription drugs at $2,000 beginning in 2025 (with annual adjustments thereafter);
- establishes a program, beginning in 2025, under which drug manufacturers provide discounts to beneficiaries who have incurred costs above the annual deductible;
- eliminates cost-sharing under the Medicare prescription drug benefit for adult vaccines that are recommended by the Advisory Committee on Immunization Practices, and requires coverage, without cost-sharing, of such vaccines under Medicaid and the Children’s Health Insurance Program (CHIP); and
- caps cost-sharing under the Medicare prescription drug benefit for a month’s supply of covered insulin products at (1) for 2023 through 2025, $35; and (2) beginning in 2026, either $35, 25 percent of the government’s negotiated price, or 25 percent of the plan’s negotiated price, whichever is less.
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