On August 16, 2022 President Biden signed into law the Inflation Reduction Act of 2022 (IRA). The Inflation Reduction Act includes the following major changes, effective beginning after December 31, 2022, unless otherwise noted:
Individual Income Taxes
- Extension of Limitation on Excess Business Losses of Noncorporate Taxpayers: Extends limitation on excess business losses of noncorporate taxpayers by two years. Losses disallowed for taxable years beginning 2021 through 2028.
- Health insurance Premium Tax Credits extended: Extends the expanded health insurance Premium Tax Credits provided in the American Rescue Plan Act (ARPA), including allowing higher-income households to qualify for the credits and boosting the subsidy for lower-income households, through the end of 2025.
Corporate and International Taxes
- Corporate Alternative Minimum Tax: Imposes a 15% corporate alternative minimum tax (AMT) on any corporation that, in a taxable year, has average annual "adjusted financial statement income" (AFSI) of $1 billion or more for the three-year period ending with such taxable year (or the period during which the corporation was in existence, if shorter). The provision is effective for tax years beginning after December 31, 2022. The tax utilizes accounting concepts for tax rules in order to determine what is a taxable gain. The $1 billion threshold is applied in the aggregate to certain commonly controlled enterprises. Foreign-parented corporations also will be subject to the AMT if the income of their international reporting group exceeds $1 billion and the foreign-parented corporation’s average AFSI exceeds $100 million. The AMT does not apply to S corporations, regulated investment companies, or real estate investment trusts. Corporations are exempt from the AMT following a change in ownership if they fail to meet the $1 billion threshold for a number of years to be specified in future Treasury Regulations or if they are otherwise specifically exempted by future Treasury Regulations.
- Stock buy-back excise tax: Creates a 1% excise tax on the repurchase of stock by a domestic corporation traded on an established securities market. Generally, the excise tax would be imposed on the value of the stock repurchased and would be reduced by the value of any stock issued during the tax year, starting after December 31, 2022. If the repurchase was part of a reorganization for tax purposes, an employer sponsored retirement plan or employee stock ownership plan or treated as dividends for tax purposes, it would be excluded from the tax.
Other Tax Related Provisions
- Clean energy and green technology: Modifies, extends, and creates a variety of tax credits for green energy and other efforts primarily through 2031 or 2033. If you or your company have an interest in clean energy tax credits (corporate or individual) please reach out to your HKG advisor for more information.
- Increase and expansion of 179D tax deduction: The 179D tax deduction has been significantly increased from the current maximum of $1.88 per square foot in 2022 to $5 per square foot to reward the construction of energy efficient commercial buildings and multifamily buildings that are 4 stories or taller.
- Reinstatement of the Superfund Tax: The IRA would reinstate hazardous substances superfund taxes imposed under Section 4611 and increase the per barrel financing rate from 9.7 cents to 16.4 cents per barrel. The IRA also increases other taxes and fees on the fossil fuel sector.
- Funding IRS and Improving Taxpayer Compliance: Expands IRS enforcement funding by approximately $80 billion over a 10 year period for tax enforcement, compliance, operations support and modernization.
- Prescription drug pricing negotiation noncompliance excise tax: Imposes a nondeductible excise tax on manufacturers, producers or importers that fail to enter into negotiated drug pricing agreements. The tax would apply to each sale made during specified "noncompliance periods".
- R&D tax credits for small businesses: Increases the research & development tax credit amount that can be claimed against payroll taxes for small businesses under IRC Sec. 41(h) from $250,000 to $500,000 for tax years beginning after December 31, 2022.
Other
- Prescription drug price reform: The bill allows Medicare to negotiate the price of certain prescription drugs, intended to bring down the price beneficiaries will pay for their medications. The bill will put a $2,000 annual cap on out-of-pocket prescription drugs for people insured by Medicare, starting in 2025.
Please reach out to your HKG accounting professional if you have any questions.
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