On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022. The legislation contains several tax-related provisions that are expected to increase federal tax revenue by $90.7 billion over the next 10 years.
In addition, the Secure 2.0 Act was signed into law on December 29, 2022. This legislation is designed to substantially improve retirement savings options for individuals, employees, and businesses.
Provisions of both legislation include the following.
- Premium tax credit – The legislation extends the premium tax credit and its expanded eligibility through 2025. Its provisions eliminate the credit’s phaseout for households with annual incomes above 400% of the federal poverty line. The provisions also increase premium credit amounts by adjusting the percentage of annual income that eligible households are required to contribute to the premium. The provision is effective for tax years beginning after December 31, 2022
- Energy efficient home improvement credit – Energy credits under IRC 25C are extended to December 31, 2032. The credit is increased to 30% with an annual limit per taxpayer of $1,200 ($600 limit per item) rather than a lifetime limitation. Limits for the amounts spent on windows ($600) and doors ($250 for any exterior door and $500 in the aggregate for all exteriors doors) are increased and required energy-efficiency standards will be modified. The credit is allowed on expenditures on any dwelling unit used by the taxpayer as a residence. Starting in 2025, taxpayers must submit a product identification number to claim the associated credit. A 30% credit (limit to $150) is available for home energy audits.
- Residential clean energy credit – The credit for the purchase of solar electric property, solar water heating property, fuel cells, geothermal heat pump property, small wind energy property, qualified biomass fuel property, and qualified batter storage technology is extended through December 31, 2034. The rate is 30% through 2032, reduced to 26% in 2033, and 22% in 2034.
- Clean vehicle credit – A maximum nonrefundable credit of $7,500 is available to buyers of qualifying plug-in electric vehicles. Similarly, the credit for previously owned cleaned vehicles provides buyers of previously owned clean vehicles a $4,000 maximum credit, limited to 30% of the purchase price. For qualified commercial clean vehicles, a credit is available for the lesser of 15% of the vehicles cost or the incremental cost of the vehicle to a comparable vehicle. These credits do not apply to vehicles acquired after December 31, 2032.
- Increase in age for required beginning date for mandatory distributions – Under current law, participants are generally required to begin taking distributions from their retirement plans at age 72. The required minimum distribution age is increased to 73 starting on January 1, 2023 – and increases the age further to 75 starting on January 1, 2033.
- Higher catch-up limit to apply to age 60, 61, 62, and 63. Under current law, employees who have attained age 50 are permitted to make catch-up contributions under a retirement plan in excess of otherwise applicable limits. The limit on catch-up contributions for 2022 is $7,500, except in the case of SIMPLE plans for which the limit is $3,000. These limits are increased to the greater of $10,000 or 50 percent more than the regular catch-up amount in 2025 for individuals who have attained ages 60, 61, 62, and 63. The increased amounts are indexed for inflation after 2025. Effective for taxable years beginning after December 31, 2024.