On Sunday, August 7, after nearly 16 hours of deliberation that started on the Saturday night prior, the Senate passed a new bill known as the Inflation Reduction Act. This past Friday, the House voted and passed the bill sending it to President Biden’s desk for signature. Now after months of negotiations surrounding the agreement, it’s official – President Biden signed the bill into law yesterday afternoon. During the signing ceremony at the White House, President Biden referred to this legislation as “one of the most significant laws in our history.”
The bill has extensive provisions related to climate, health care, and taxes. While we navigate the 700 plus pages of legislation included in this newly enacted bill, here are some highlights of the key provisions:
- Corporate Alternative Minimum Tax – This provision creates a minimum tax of 15% for corporations (not including S corporations) and is generally applicable to those corporations with average financial statement income exceeding $1 billion.
- Excise Tax on Repurchase of Corporate Stock – A tax of 1% will be assessed on the fair market value of any stock repurchased by a corporation whose stock is traded on an established securities market.
- Funding the Internal Revenue Service and Improving Taxpayer Compliance – Nearly $80 billion would be allocated to the IRS over the next 10 years to fund taxpayer services, enforcement, operations support, systems modernization, etc. This section of the bill is not intended to increase taxes on taxpayers or businesses with below $400,000 in taxable income.
- Prescription Drug Pricing Reform – Allows Medicare to negotiate lower drug prices and imposes an excise tax on prescription drug manufacturers, producers, and importers that don’t enter into drug pricing agreements with the government on selected drugs.
- Affordable Care Act Subsidies – Extends the health insurance related Premium Tax Credit, that was previously made under the American Rescue Plan Act of 2021, through 2025.
- Energy Security and Clean Incentives – Provides various tax credits for individuals and businesses for the use of green energy and purchasing new and used clean-energy vehicles. Many existing renewable energy credits are extended or expanded.
- Reinstatement of Superfund Excise Taxes – Previously expired in 1995, the bill reinstates the Hazardous Substance Superfund imposing an excise tax on crude oil received at a US refinery and petroleum products entering the US for consumption, use, or warehousing, at a rate of 16.4 cents per barrel.
- Increase in Research Credit Against Payroll Tax for Small Businesses – Increases the maximum research credit that may be applied against payroll taxes for qualified small businesses from $250,000 to $500,000.
- Extension of Limitation on Excess Business Losses – Extends by two years the limitation on amount of business losses that can be deducted in a taxable year by noncorporate taxpayers.
While many tax provisions originally being discussed did not make it into this final bill, this still represents significant changes affecting taxpayers. Over the coming days and weeks, we will provide more information about the tax implications of this new law. As always, we’re committed to sharing information as it becomes available and supporting your tax, accounting and audit needs going forward. If you have any questions, please give us a call, and watch for additional information in the weeks ahead.