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Was I the only one ready to add to my retirement account when I heard Washington passed the IRA 2022?
Actually, it is the Inflation Reduction Act of 2022 (IRA) which is a lighter version of the Build Back Better bill. This new bill aims to combat climate change, lower prescription drug costs, and pay for it by raising taxes on corporations and collecting unpaid taxes.
Here are the main points you should know.
How it Will Affect Corporations
1 – Created a 15% corporate minimum tax rate: This applies to Corporations with at least $1 billion in income, which will have a minimum tax rate of 15%. This tax excludes Subchapter S corporations, regulated investment companies, and real estate investment trusts. It is effective after December 31, 2022. (1)
2 – Tax on stock buybacks: Corporations face a 1% excise tax on the fair market value of stock repurchased by a domestic corporation after 2022. (1)
Tax Impact
The bill allocated $80 billion over the next ten years to enhance tax collection (1) and is expected to raise $124 billion in revenue. (2)
Medicare (1)
There are several items here:
(1) Rebates on Drugs: The bill requires drug manufacturers to issue rebates to the Centers for Medicare & Medicaid Services (CMS) for brand-name drugs without generic equivalents under Medicare that cost $100 or more per year per individual, for which prices increase faster than inflation. Manufacturers that fail to comply are subject to civil penalties.
(2) Medicare Improvements and Maximum Out-of-Pocket Cap
a. The bill eliminates cost-sharing above the annual out-of-pocket spending threshold under the Medicare prescription drug benefit beginning in 2024 and caps annual out-of-pocket spending at $2,000 in 2025, providing annual adjustments thereafter.
b. It also establishes a program under which drug manufacturers provide discounts to beneficiaries who have incurred costs above the annual deductible beginning in 2025.
c. The bill also establishes a process through which certain beneficiaries may have their monthly out-of-pocket costs capped and paid in monthly installments beginning in 2025.
d. The bill establishes additional programs and requirements for coverage under the Medicare prescription drug benefit and other programs.
i. The bill eliminates cost-sharing under the Medicare prescription drug benefit for adult vaccines recommended by the Advisory Committee on Immunization Practices.
ii. It also requires coverage, without cost-sharing, of such vaccines under Medicaid and the Children's Health Insurance Program (CHIP).
iii. The bill caps cost-sharing under the Medicare prescription drug benefit for a month's supply of covered insulin products at $35 for 2023 through 2025, beginning in 2026, either $35, 25% of the government's negotiated price, or 25% of the plan's negotiated price, whichever is less.
Affordable Care Act Subsidies (1)
The bill extends through 2025 certain adjustments and expansions of the premium tax credit, allowing taxpayers with income above 400% of the federal poverty line to qualify for the credit.
Energy Security and Climate Change Funding (1)
The bill includes numerous investments in climate protection, including tax credits for households to offset energy costs, investments in clean energy production, and tax credits aimed at reducing carbon emissions. The bill earmarks $369 billion for climate and energy policies, including financial incentives for consumers and businesses that take steps to boost energy efficiency and reduce greenhouse gas emissions.
For a more detailed description of the provisions click here to read the summary from the National Law Review.
The IRA 2022 by the Numbers (3)
This chart from the Senate Democrats attempts to identify the costs and the revenue from the Inflation Reduction Act.
The White House says the legislation will help create millions of well-paying jobs in the clean energy sector and reduce the federal deficit by hundreds of billions of dollars. (4)
Despite the White House’s highest hopes for this new legislation, only time will tell its true impacts.
Sources:
(1) https://www.congress.gov/bill/117th-congress/house-bill/5376
(2)https://www.democrats.senate.gov/imo/media/doc/inflation_reduction_act_one_page_summary.pdf
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