Recently, there have been several bills trying to make their way through the federal government, but few of the very large ones have managed to get passed. The Inflation Reduction Act, signed into law on August 16, 2022, was one that seemed to combine several previous attempts at passing large bills, such as the Build Back Better Act. It covers a wide range of policy categories, but the major changes have been in green energy, taxes, and healthcare costs.
The bill is massive, with projections to raise $738 billion in taxes and cost $369 billion for energy, $238 billion to reduce the deficit, and money to fund healthcare subsidies and prescription drug reform. The Central Billing Office has projected it won't do much for inflation, making the title of the bill a bit confusing.
Much of the talk on the news seems to be around job generation (especially in green energy industries) and potentially larger taxes for corporations. With all this said, it can be hard to know how it would actually affect an individual who doesn't work in the government, energy, or health sectors. However, there are some parts of the Inflation Reduction Act that may affect you and even bring down some of the costs in your monthly budget. Let's take a look.
Lower healthcare premiums for some
If you purchase health insurance through the Affordable Care Act (ACA) exchange, you may have seen higher subsidies last year, resulting in lower costs. That's because the American Rescue Plan from 2021 limited health insurance premiums so that, with credits, they won’t cost more than 8.5% of your income. This likely lowered your premiums and possibly even made your health insurance premiums cost nothing.
This additional subsidy was set to expire at the end of this year, but the Inflation Reduction Act extended that extra benefit through the end of 2025. If you see lower monthly health insurance premiums as a result of the American Rescue Plan, you can continue enjoying the savings for a few more years.
Cheaper prescriptions for seniors
Those receiving Medicare will see some relief in their monthly prescription costs due to the changes in the Inflation Reduction Act. In addition to capping the cost of insulin to $35 per month for those aged 65 and older, seniors won't have to pay more than $2,000 out of pocket for prescriptions starting in 2025. Vaccines recommended by the Advisory Committee on Immunization Practices will also be free through the Medicare program.
Some rebates for green energy upgrades
If you are already considering some eco-friendly upgrades to your home or car, you could be saving money through updates in the Inflation Reduction Act. While the bulk of the funding goes to companies and large organizations making sweeping changes, there are a few opportunities for individual consumers to cut the cost of green energy products. This includes:
A tax credit of $7,500 for select new electric vehicles and $4,000 for used ones
Up to $1,000 for an electric vehicle charger
Up to $2,500 for electrical wiring upgrades
Up to $4,600 for upgrades to an electrical panel
Up to $3,750 for a heat pump water heater
Up to $10,000 for a heat pump HVAC system
Up to $840 for an electric stove
Up to $840 for a heat pump clothes dryer
Up to $2,800 for weatherization
30% off battery storage installation
30% off geothermal heating installation
30% off rooftop solar installation
The amounts will be paid in both up-front discounts and tax credits. To see what you may be eligible to receive, you can use this calculator at Rewiring America. Your total available credits will depend on your household size, income, and where you live. Those with lower incomes will be eligible for more of the credits and rebates.
Other parts of the law
Again, a large part of this bill is directed at corporations, schools, manufacturers, and energy companies. A higher corporate sales tax, for example, won't affect you directly, but any change in the market may eventually change what you pay for a product or how much you get paid at your job. We won't know just how the other parts of the law (those not giving you money directly) will influence your budget, and we may never know since there are so many moving parts.
The law itself is over 700 pages and includes an additional $80 billion in funding for the IRS to modernize its systems, hire support staff, and increase tax audits and enforcement. The IRS funding is just one example of the topics being covered in the media today, but we just don't know what it will mean for the individual just yet.
The bottom line
So, what we know of the Inflation Reduction Act is that it likely won't affect inflation, at least not for a long while, and not very much overall. However, it willhttps://www2.deloitte.com/us/en/pages/tax/articles/inflation-reduction-act-2022-clean-energy-incentives.html:
Continue to reduce the cost of monthly premiums for some buyers from the ACA marketplace, at least until 2025
Make some prescriptions more affordable for seniors, and reduce the maximum they will pay for those drugs
Give some renters and homeowners money back in upfront discounts and tax credits on select green energy upgrades, including weatherization, electric appliances, and vehicles
Fund an increased IRS budget for additional workers
It's possible that you won't save a dime under this plan, especially if you buy your insurance outside the marketplace and don't plan on buying any new green energy products or services soon. On the other hand, if you've been noticing your windows are a bit drafty and have been putting off replacing them, you can save a few bucks doing something you probably should have done and may see a change in your monthly heating charges as a result.
Like most large bills, it will take some time to really understand all the details. If you have questions about how each portion affects you, reach out to your local congressional representative or senator. They can put you in touch with someone at their office to better inform you on how the Inflation Reduction Act may impact you.