With the upcoming Internal Revenue Service (IRS) changes this year, millions of Americans could be affected especially with their finances.
President Joe Biden ratified the Inflation Reduction Act on August 16. One of the largest expenditure plans in American history, at $750 billion.
IRS Changes In 5 Years
A large portion of the money will go toward implementing tax reform, lowering healthcare and prescription drug costs, and fighting climate change. When though? And how do the taxpayers fare in all of this?
Here is a breakdown of some of the most significant Inflation Reduction Act amendments that will be put into effect over the following five years and what they might mean for your wallet, according to CPAs and other financial experts.
Costs of Health Insurance
According to Bruce A. Tannahill, director of estate and business planning at MassMutual, of interest to people who buy their health insurance on an exchange under the Affordable Care Act is that the Inflation Reduction Act increased the premium tax credit available to people enrolled in a qualified health plan. The new rule will be in place by 2023.
Costs of Prescription Drugs
Retirement income is limited, thus seniors must balance rising costs with fixed income, according to Brian Mawhinney, CFP, head of financial planning at MassMutual. The Inflation Reduction Act makes an effort to combat rising healthcare costs by addressing rising prescription drug costs in order to help prevent seniors from forgoing necessary services like healthcare.
Energy-Saving Home Improvements Credit
According to Levon L. Galstyan, CPA of Oak View Law Group, the Nonbusiness Energy Property Credit has been renamed the Energy-Efficient Home Improvement Credit and extended through 2032. Beginning in 2023, the credit will be equal to 30% of the costs of all permitted home modifications made during the year.
- The $500 lifetime credit limit will be replaced by an annual maximum of $1,200.
- The yearly caps for eligible upgrades are $150 for home energy audits, $250 for any exterior door (a total of $500 for all exterior doors that adhere to Energy Star requirements), $600 for exterior windows and skylights that adhere to Energy Star’s most efficient certification requirements, and $600 for other qualified energy property (central air conditioners, electric panels, related equipment, natural gas, propane or oil).
- This form of improvement is not subject to the $600 cap on qualified energy property and the $1,200 yearly cap on total credits, and roofing is no longer a permitted upgrade.
The credit is 30% from 2023 to 2032, 26% from 2033, and 22% from 2034, according to Galstyan.