Congress Passes Inflation Reduction Act, Biden Signs Into Law
President Joe Biden recently signed the Inflation Reduction Act, H.R. 5376, after the U.S. House of Representatives approved the Senate's version of the bill late last week.
The $739 billion legislation, a scaled-down version of the bill known as Build Back Better, was approved by the Senate on Aug. 7. It includes a package of energy and conservation-related tax credits, increased funding for the IRS and a number of tax provisions. Tax provisions include a 15% corporate minimum tax, an extension of temporarily expanded eligibility for health care premium tax credits and a 1% excise tax on corporations applying to repurchases of their stock, among others. The bill also addresses prescription drug pricing reform.
The bill’s corporate minimum tax will apply to corporations with an average of more than $1 billion in book income for three consecutive tax years for tax years beginning after Dec. 31, 2022.
Added to the Internal Revenue Code as new Sec. 4501, the tax on stock buybacks will also go into effect next year. The Senate added that provision after removing another that would have extended the long-term-capital-gain holding period for partnership interests held in connection with the performance of services (carried interests) from three to five years.
In addition, the bill amends Sec. 36B to extend through 2025 the expanded eligibility for health care premium tax credits to taxpayers whose household income exceeds 400% of the poverty line and makes changes to the calculation of the applicable percentage of premium assistance amount. These provisions had been temporarily provided for tax years 2021 and 2022 under the American Rescue Plan Act, P.L. 117-2.
Energy-related provisions include several new tax credits for clean energy, fuels, vehicles and other transportation. Additionally, the bill extends temporary existing energy credits, including the Sec. 25C credit for nonbusiness energy property and the Sec. 25D credit for residential clean energy.
Per Senate Democrats' summary of the bill's revenue effects, the bill’s IRS funding provisions would raise an estimated $124 billion in revenue. According to a Congressional Research Service report, the provisions raise the IRS’ budget authority through fiscal year 2031 by the following functions and amounts:
- Enforcement, by 69% to $111.7 billion
- Operations support, by 53% to $72.9 billion
- Taxpayer services, by 9% to $36.8 billion
- Business systems modernization, by 153% to $7.8 billion
Both the House and Senate passed the bill under budget reconciliation rules, which allow a simple majority vote to pass legislation. In the Senate, Vice President Kamala Harris cast the tiebreaking vote. The House also voted along party lines, with a 220-207 vote.
Don’t miss TSCPA’s Webcast: Summary and Analysis of the Inflation Reduction Act of 2022. Choose from Aug. 26 or Aug. 31 from 8 a.m.-10 a.m. and learn the information you need to properly advise your clients on the impact of the various tax changes embodied in the IRA. Attendees will learn from expert panelists the detail of all relevant facets applicable to individual and business planning. Be the first to know about this brand-new legislation in a comprehensive manner. (Credits: 2 Taxes)