The Senate has finally passed legislation with significant environmental and health care provisions, the U.S. Inflation Reduction Act of 2022, H.R. 5376.
The tax-related provisions include a 15% alternative minimum tax for large corporations with average adjusted financial statement income greater than $1 billion over the previous three years. This provision is intended to satisfy an agreement with the European Union. The media have pointed out that many publicly-traded corporations that report billions of dollars of net income on their financial statements pay zero federal income taxes. This provision will assure they do pay some income taxes.
Another provision increases the holding period for “carried interests” of investment promoters from three years to five years to qualify for long-term capital gain rates when an interest is sold.
A significant environmental provision extends the $7,500 tax credit for new electric vehicles that meet certain requirements for manufacture in the U.S. and eliminates the cap on vehicles sold per manufacturer. A new $4,000 credit for the purchase of a used electric vehicle would also be adopted. Only taxpayers with income below $150,000 and joint filers with income below $300,000 would be eligible for the new EV credit. The thresholds for the used EV credit would be $150,000 for married, filing joint and $75,000 for other taxpayers. The buyer would also be able to assign the credit to the seller, to reduce the down payment for the vehicle.
There are many subsidies for environmentally-friendly infrastructure, including wind and solar projects.
The research and development tax credit amount that small businesses may claim against their payroll taxes would be increased by $250,000.
Expanded Affordable Care Act subsidies (the premium tax credit) would be extended through 2025.
Prescription costs for seniors would be reduced by negotiation between Medicare and the pharmaceutical companies.
In addition to the corporate alternative minimum tax, the subsidies in the legislation would be paid for with an $80 billion investment in IRS enforcement (more tax audits.)
Although the provisions are significant, I think you can see these provisions won’t have a significant impact on most taxpayers’ income tax returns, possibly with the exception of the expanded premium tax credit and tax credits for energy improvements to a residence or for buying an electric vehicle.
Remember the legislation still has to be passed in the House of Representatives and approved by President Biden. Considering the legislation squeaked through the Senate, the best approach in the House of Representatives would be to pass the Senate bill unchanged. President Biden says he’ll sign the bill when it’s passed.