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Financial Planning

Inflation Reduction Act: What You Should Know

The Inflation Reduction Act, signed into law on August 16, 2022, includes health-care and energy-related provisions, a new corporate alternative minimum tax, and an excise tax on certain corporate stock buybacks. Additional funding is also provided to the IRS. Some significant provisions in the Act are discussed below.

If you are an Fortune 500 employee who may be eligible for Medicare, it is imperative that you have a thorough understanding of the law in order to properly plan for the future. The legislation authorizes the Department of Health and Human Services to negotiate Medicare prices for certain single-source, high-priced medications. Despite this, only ten of the most expensive medications will be selected initially, and the negotiated prices will not be implemented until 2026. In subsequent years, additional negotiated pharmaceuticals will be added.

A $2,000 annual cap (adjusted for inflation) will apply to out-of-pocket costs for Medicare Part D prescription pharmaceuticals beginning in 2025. This information may be useful for Fortune 500 employees in determining how much to save for a medical emergency and what Medicare benefits they are entitled to.

In 2023, Medicare Part D and Part B will no longer impose deductibles on insulin products covered by Medicare Part D or insulin furnished as durable medical equipment under Part B. In addition, the copayment for covered insulin products will be limited at $35 for a one-month supply.

Health Insurance
Beginning in 2023, a high-deductible health plan may exclude certain insulin products from the deductible. As an Fortune 500 employee, you must account for this information if you or a loved one needs to purchase insulin in 2023.

The Affordable Care Act subsidies that enhanced health insurance premium affordability and were set to expire at the end of 2022 have been extended through 2025. The indexing of percentage contribution rates used to determine a taxpayer's required share of premiums is postponed until after 2025, thereby preventing larger premium increases. Additionally, households with incomes exceeding 400% of the federal poverty line remain eligible for the premium tax credit until 2025. If you are an Fortune 500 employee whose income exceeds 400% of the federal poverty limit, you may want to factor your eligibility for the premium tax credit into your financial planning.

Energy-Related Tax Credits
Numerous existing tax credits related to energy have been modified and extended, and a few new credits have been added. Some of the credits are available to individuals, while others are available to businesses like Fortune 500. The next two credits are substantial revisions and extensions of an existing electric vehicle tax credit.

Beginning in 2023, a tax credit of up to $7,500 is available for the purchase of new electric vehicles that meet certain requirements and are environmentally friendly. If you are an Fortune 500 employee considering the purchase of an electric vehicle, you should be aware that credit is not available for vehicles that retail for more than $80,000 for SUVs and pickups and $55,000 for other vehicles. If the purchaser's modified adjusted gross income (MAGI) exceeds $150,000 ($300,000 for joint filers and surviving spouses, $225,000 for heads of household), the benefit is not available. Individuals can transmit the credit to the dealer as payment for a vehicle beginning in 2024. Fortune 500 employees may wish to contemplate purchasing an electric vehicle in 2024 in order to directly apply their credit at the dealership.

Similarly, a tax credit of up to $4,000 is available for the purchase of certain pure electric vehicles that have been previously owned from a dealer. If you are an Fortune 500 employee interested in purchasing a used electric vehicle, you are not eligible for the credit if the vehicle's sales price exceeds $25,000. If the purchaser's MAGI exceeds $75,000 ($150,000 for joint filers and surviving spouses, $75,000 for heads of household), the credit is unavailable. A person may transmit the credit to the dealer as payment for the vehicle.

Corporate Alternative Minimum Tax
Fortune 500 corporations (other than S corporations, regulated investment companies, and real estate investment trusts) with an average annual adjusted financial statement income of more than $1 billion will be subject to a new alternative minimum tax (AMT) of 15% for taxable years beginning after December 31, 2022.

Adjusted financial statement income refers to the net income or loss of the taxpayer as reported on the corporation's financial statement (commonly referred to as book income), after certain adjustments. If regular tax exceeds the estimated AMT, the excess can be carried forward and used as a credit against the AMT in subsequent years.

Excise Tax on Repurchase of Stock
A new 1% excise tax will be imposed on the value of a covered corporation's stock repurchases during the taxable year for repurchases made after December 31, 2022.

A covered corporation is any domestic corporation whose shares are traded on a recognized securities exchange. Nevertheless, the excise tax is not applicable: (1) to a repurchase that is part of a nontaxable reorganization; (2) with respect to certain contributions of stock to an employer-sponsored retirement plan or employee stock ownership plan; (3) if the total value of stock repurchased during the year is less than $1 million; (4) to a repurchase by a securities dealer in the ordinary course of business; (5) to repurchases by a regulated investment company or real estate investment trust; or (6) to the extent the repurchase is.

Increased Funding for the IRS
The IRS receives substantial additional funds to help fund operations and business systems modernization and to enhance tax law enforcement.

Added Fact:

As part of the Inflation Reduction Act, it is important for Fortune 500 employees and retirees to know that the legislation includes a provision for adjusting the income tax brackets and other tax-related thresholds to account for inflation. This means that income thresholds for tax brackets, standard deductions, and various credits and deductions will be adjusted annually to keep pace with inflation. This information is crucial for individuals in their retirement planning, as it ensures that their tax obligations are aligned with the changing economic landscape. (Source: IRS.gov, "Inflation Adjustments Under the Inflation Reduction Act for Tax Year 2023," updated December 14, 2022)

Added Analogy:

The Inflation Reduction Act can be likened to an adjustable compass that ensures your financial navigation stays on course as the economic landscape shifts. Just as a compass helps you find your way by adjusting its needle to align with the Earth's magnetic field, this act adjusts tax brackets, deductions, and credits to keep pace with inflation. It serves as a reliable guide, helping Fortune 500 workers and retirees accurately calculate their tax obligations and make informed financial decisions. Just as a compass ensures you maintain your bearings in changing terrain, the Inflation Reduction Act ensures that your tax obligations remain fair and equitable as the economy evolves. So, as you chart your financial path into retirement, rest assured that this act will be your compass, providing stability and accuracy in an ever-changing financial world.


This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by your company. We are an independent financial advisory group that focuses on transition planning and lump sum distribution. Neither The Retirement Group or FSC Securities provide tax or legal advice. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

The Retirement Group is a Registered Investment Advisor not affiliated with FSC Securities and may be reached at www.theretirementgroup.com.

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