The Inflation Reduction Act, signed into law on August 16, 2022, primarily addresses changes to Medicare, health insurance, and energy-related tax credits. It also provides additional funding to the IRS and is paid for by a new corporate alternative minimum tax and an excise tax on certain corporate stock buybacks.

You can expect to hear more from us in the coming months about the planning implications of this Act, but for now, we have summarized the key consumer provisions below.

Medicare

• Authorizes the Department of Health and Human Services to negotiate Medicare prices for certain high-priced, single-source drugs. Only 10 of the most expensive drugs will be chosen initially, and the negotiated prices will not take effect until 2026. 

• Starting in 2025, a $2,000 annual cap (adjusted for inflation) will apply to out-of-pocket costs for Medicare Part D prescription drugs.

• Starting in 2023, deductibles will not apply to covered insulin products under Medicare Part D or Part B for insulin furnished through durable medical equipment. Copayments for covered insulin products will be capped at $35 for a one-month supply.

Health Insurance

• Starting in 2023, a high-deductible health plan can provide that the deductible does not apply to selected insulin products.

• Affordable Care Act subsidies (scheduled to expire at the end of 2022) have been extended through 2025.

  • Indexing of percentage contribution rates used in determining a taxpayer's required share of premiums is delayed until after 2025.

  • Those with household incomes higher than 400% of the federal poverty line remain eligible for the premium tax credit through 2025.

Energy-Related Tax Credits

• Starting in 2023, a tax credit of up to $7,500 is available for the purchase of new clean electric vehicles meeting certain requirements.

  • The credit is not available for vehicles with a manufacturer's suggested retail price higher than $80,000 for SUVs and pickups, $55,000 for other vehicles.

  • The credit is not available if the modified adjusted gross income (MAGI) of the purchaser exceeds $150,000 ($300,000 for joint filers and surviving spouses, $225,000 for heads of household).

• A tax credit of up to $4,000 is available for the purchase of certain previously owned clean electric vehicles from a dealer.

  • The credit is not available for vehicles with a sales price exceeding $25,000.

  • The credit is not available if the purchaser's MAGI exceeds $75,000 ($150,000 for joint filers and surviving spouses, $75,000 for heads of household).

• The residential clean energy credit extends the current 30% tax credit towards the installation cost of solar panels and expands it to include other equipment used to harness renewable energy (including battery storage technology).

• The current 10% residential energy credit (with a lifetime cap of $500) is replaced with a “nonbusiness energy property credit” that offers a 30% tax credit and an annual cap of $1,200 (although some projects allow for a higher $2,000 cap).