You may have heard that the Senate passed the Inflation Reduction Act on Sunday—and the House is expected to pass it on Friday. What exactly is it, and what does it mean to you?
Like most government initiatives, the bill is a hodgepodge of items. In the likely event it becomes law, the bill will, among other things:
- Impose a new 15 percent minimum tax on corporations with average annual income over $1 billion.
- Enact 1 percent excise tax on certain stock repurchases.
- Increase IRS funding to the tune of almost $80 billion over the next decade.
Among other items, this is all intended to pad the government’s coffers to pay for:
- IRS compliance. In other words, if you are a tax-dodger, look out, particularly if you are a high-net-worth individual or corporation. Because of the long training period to create a good auditor, we expect there to be more and longer running audits. We also expect more disputes with the IRS. That means increased costs to defend against unreasonable positions by the IRS.
- A free e-filing system.
- Incentives (including credits and rebates) for individuals and businesses to become more energy efficient. This will include incentives for purchasing clean fuel automobiles, building and manufacturing energy efficient homes, upgrading existing homes and commercial buildings more energy efficient, and producing clean energy and fuels. For most of you reading this, your incomes may be too great and you may not benefit from the purchase of an electric vehicle at all.
- Increasing the Research Credit against payroll taxes. Under the Inflation Reduction Act, qualifying businesses could take an additional credit of up to $250,000 against Medicare Hospital Insurance tax.
- Encouraging taxpayers to purchase health insurance on their state healthcare exchange by extending the current Premium Tax Credit for three years.
- Providing free vaccines to Medicare recipients and limiting the amount Medicare recipients pay for prescriptions, as well as certain premiums and co-pays.
In the next decade, the bill is expected to bring in $203.7 billion in “revenue,” a.k.a. taxpayer dollars. It remains to be seen, but we hope, it will promote greater efficiencies with the IRS via the modest allocation of the $80 billion earmarked to the IRS over the next ten years for enhanced taxpayer services.
In short, maybe the IRS will answer the phone.