Key provisions in the Inflation Reduction Act of 2022

Last week Congress passed and President Biden is expected to sign the Inflation Reduction Act of 2022 (H.R. 5376), a comprehensive legislative package intended to invest $437 billion on healthcare, energy production, and climate change mitigation. The legislation also includes a number of provisions, including significant tax changes, that will raise $740 billion in revenue to offset the major investments and pay down part of the federal deficit.

Here are a few of the highlights:

Tax Provisions and Revenue Raisers

  • Corporate Minimum Tax: For taxable years beginning after Dec. 31, 2022, a new corporate minimum tax of 15% imposed on corporations with an average book income of over $1 billion.
  • Excise Tax on Stock Buy Backs: Beginning after Dec. 31, 2022, a 1% excise tax on stock buybacks by a publicly traded company except for limited exceptions.
  • Excess Business Loss Limitations for Individuals: Extend the current excess business loss limitation rules from Jan. 1, 2027 to taxable years that begin before January 1, 2029.
  • IRS Funding: Increase IRS funding with the expectation to bring in additional revenue through enforcement. Funding includes $3.2 billion for taxpayer services, $45.6 billion for enforcement, $25.3 billion for operations support, and $4.8 billion for business systems modernization.

Healthcare Provisions
Drug pricing provisions related to price negotiations, inflationary rebates, and Medicare reforms including caps on certain drug costs. The Affordable Care Act tax credit is also extended by three years.

Energy policies
Direct investment to a variety of programs intended to support energy infrastructure, reduce emissions, and other efforts to mitigate impacts of climate change. The package includes a number of credits and other incentives for manufacturers and consumers that adopt new low carbon energy technologies; including adoption of solar, electric vehicle, and more efficient appliances and credits for investment and research in new low carbon energy development.

Please note that legislative proposals are complex and wide ranging. Before making any determinations for yourself or your client, be sure to review the provisions in detail and consult with experts as appropriate.