Small businesses and families are the biggest beneficiaries of the 2022 Inflation Reduction Act. The White House promoted the new legislation as a way “to lower prescription drug costs, health care costs and energy costs to create opportunities for America’s 33 million small businesses and startups.”

Here is an overview of the Inflation Reduction Act’s impact on larger corporations along with the benefits for small business owners and individuals.

The Act’s benefits for small businesses

• With the goal of further decreasing the amount of uninsured self-employed Americans, the Act preserves the American Rescue Plan’s premium tax credit supports for Affordable Care Act plans by extending them through 2025. The objective is to boost new business formation by offering more affordable insurance.
• Small businesses are eligible for a tax credit that covers 30% of the cost of transitioning to solar power. Businesses that use trucks or vans can also receive the 30% of the purchase price for clean commercial vehicles.
• Owners of buildings that house a small business can receive a tax credit of up to $5 per square foot to support energy efficient improvements to the property.
• The Research and Development Tax Credit for Small Businesses will be doubled from $250,000 to $500,000.

How the Inflation Reduction Act impacts large corporations

• There will be a 15% minimum tax on corporations with over $1 billion in revenue, with exceptions made for accelerated depreciation and for subsidiaries of private equity starting in 2023, to raise $222 billion.
• The legislation calls for a 1% excise tax on stock buybacks, effective Jan. 1, to raise $74 billion.

The Inflation Reduction Act’s effect on individuals:

• The bill contains significant measures to lower prescription drug prices for those on Medicare, giving Medicare the ability to negotiate high drug prices. A tax penalty will be imposed on drug companies failing to abide by new prices. Price negotiations will begin in 2026 with 10 high-priced drugs. Penalties will be imposed for price increases in sales to Medicare.
• There will be a $2,000 per year cap on out-of-pocket costs for seniors enrolled in a Medicare drug plan.
• The government will cancel up to $20,000 of federal student loan. Eligibility is based on 2020 or 2021 adjusted gross income. Individuals who are single and earn under $125,000 will qualify for $10,000 in debt cancellation. For those who are married and file jointly or are a head of household, you qualify if your income is under $250,000.
• There are approximately $374 billion in energy and climate-related provisions, including tax incentives for green energy projects, a $7,500 tax credit for purchasing new electric vehicles and $4,000 credit for used EVs. There are also limits imposed on supply chain sourcing for EVs that qualify.
• There is a three-year extension of subsidies for Obamacare premiums. These subsidies were set to expire in 2023.

  Additional benefits of The Inflation Reduction Act:
• The bill provides an $80 billion addition to the Internal Revenue Service budget to hire more agents, upgrade technology to boost revenue collection.
• An extension of loan loss limitation tax breaks from the Trump tax package.
• New Superfund taxes on oil companies.

If you have any questions about any part of the Inflation Reduction Act, or how it specifically impacts you or your business, contact us.