Congress has just passed a budget reconciliation bill, H.R. 5376, otherwise known as the Inflation Reduction Act of 2022. The bill introduces many tax changes, including an increased Research and Development (R&D) tax credit, 15% corporate minimum tax on large corporations, clean energy credits and more. Here’s what you need to know.

Key tax provisions in the Inflation Reduction Act

Effective for taxable years beginning after December 31, 2022, the Inflation Reduction Act introduces the following changes:

15% corporate minimum tax- The Act imposes a 15% alternative minimum tax (AMT) on covered corporations “adjusted financial statement income” (AFSI) for corporations with annual profits over $1 billion, calculated over a three year period.

1% excise tax on corporate stock buybacks- The Act also imposes a 1% excise tax on the value of stock repurchases (during the taxable year), net of new issuances of stock. Keep in mind that stock contributed to employee stock ownership plans (ESOPs), retirement accounts and pensions are excluded from the excise tax.

Increased Research and Development tax credit- The Act increases the research credit available against payroll tax for small businesses, doubling the maximum amount per year from the current $250,000 to a new maximum of $500,000.

Pass through business loss limitation extended- The limitation on pass-through business losses under 2017’s Tax Cuts and Jobs Act (TCJA) is extended for two additional years. It was originally set to expire starting in 2027.

As a refresher, under the TCJA rules, if your business or rental activity generates a loss, you can only deduct a portion of the business loss against other income.

• Business losses can still offset 100% of other business income
• Business losses can only offset non-business income up to $250,000 for single filers and $500,000 joint filers.

Any unused business loss is carried over to the following year and can be deducted under the rules for net operating loss (NOL) carryforwards (also subject to limitations).

Expanded health insurance premium tax credits- The Act will lower health insurance costs for millions of people by extending the financial assistance under the American Rescue Plan Act (ARPA) through 2025. Under the extension, higher-income households will have access to the premium tax credit—which was originally enacted as part of the Affordable Care Act. The credit was originally created to be a refundable tax credit aimed at reducing premium costs for lower-to middle-income individuals who buy health plans on exchanges. Under the change, households with income above the 400% federal poverty level can benefit through the 2025 tax year.

Green energy tax credits- The Act modifies, extends and creates many tax credits for green energy through 2031 or 2033. These include:

• Up to $7,500 tax credit for purchasing some new electric vehicles, and $4,000 for used EVs,
• A 10-year extension of the homeowner credit for solar projects (ex. Solar panels),
• A $1 million incentive program for energy-efficient affordable housing
• $9 billion for consumer home energy rebate programs
• Increasing the superfund tax on crude oil and imported petroleum to 16.4 cents per barrel.

Increased IRS funding- The Act will allocate funding to the IRS so the agency can modernize their technology, add auditors and improve customer service. The Act will invest $80 billion over the next decade.

Questions on the Inflation Reduction Act? Contact us.