The Inflation Reduction Act: Incentives and Investment Towards Tax Reform, Debt Reduction, Clean Energy, and Healthcare

President Joe Biden signed The Inflation Reduction Act (IRA) into law on August 16, 2022. The $500 billion package has a 10-year life span and was intended to reduce the federal deficit and greenhouse gas emissions and lower health insurance costs while increasing access to health insurance coverage for the most vulnerable populations. The legislation is full of incentives, investments, and programs designed to promote the development and use of clean energy. It includes a combination of grants, loans, rebates, incentives, and other healthcare-related investments. The IRA contained nearly 275 pages of laws and statutes that can be divided into three categories: tax reform and debt reduction, climate and energy incentives, and healthcare reform.

Guidance and regulations to support the massive package of legislation are ongoing and will be a critical component of navigating the programs and provisions of the IRA, but there are opportunities abound for businesses, governments, and individuals within the law’s many sections. Our tax credit specialists have analyzed and reviewed the various programs and compiled a summary of each of the categories contained within the IRA.

Tax reform and debt reduction

The IRA was projected to reduce the federal deficit by roughly $100 billion, though it’s not known whether it is currently on track to reach that intended target, and there were questions about the law's funding. It imposes a corporate minimum tax of 15 percent of the company’s financial statement income, reduced by depreciation and net operating losses, among other things. The new minimum tax is effective for tax years after December 31, 2022.

In addition to the corporate minimum tax, the IRA imposts a one percent excise tax on the repurchase of corporate stock. As previously mentioned, guidance is expected on all provisions of the IRA as we move from planning to implementation.

Climate and energy incentives

One key focus of the Inflation Reduction Act was developing and utilizing clean energy, including expanding clean energy access to disadvantaged communities. This was to be accomplished through tax incentives, direct investments, and direct funding opportunities for businesses, industries, and local governments.

A litany of clean energy incentives is available for projects that pay prevailing wages and utilize qualified apprentices from registered apprenticeship programs. State, local, and Tribal governments, as well as non-profit organizations and other tax-exempt entities, may elect to receive a selection of tax credits as direct payments from the IRS for qualifying projects or investments.

Healthcare

The final category is healthcare provisions, and although the primary focus of the law was on clean energy, the IRA seeks to lower health insurance costs and increase coverage for the most vulnerable Americans. The most notable provision is the expansion of Medicare benefits to include free vaccines, insulin prices capped at $35 a month, and a ceiling for prescription drug prices at $4,000 in 2024 and $2,000 in 2026. The IRA also extends the Affordable Care Act's federal subsidies to 2025 to lower the cost of premiums for enrollees.

Understanding and utilizing the provisions of the Inflation Reduction Act  

Most of 2023 was spent planning for the Inflation Reduction Act, creating programs and coordinating between regulatory authorities while establishing guidelines for each provision. As we move through 2024, we will transition from planning to implementation, which will be accompanied by guidance from the IRS and Treasury to help businesses and individuals take advantage of some of the opportunities afforded by the IRA.

Additional information, guidance, and regulations related to its numerous, far-reaching provisions are inevitable. Our tax specialists will continue to monitor any updates and share any information could affect your finances and federal tax liability or present new opportunities for savings.

Fill out the form on this page to connect with a member of our Tax Practice to discuss potential Inflation Reduction Act opportunities or any questions you have related to the Inflation Reduction Act.