The Inflation Reduction Act: What It Means to You

By Mark A. Rioboli, CFP®, CFS

Wealth Manager, Principal

October 13, 2022

On August 16th, President Biden signed into law H.R. 5376, otherwise known as the Inflation Reduction Act. It is significant and complex legislation. In a nutshell, its changes will impact energy, health care, and tax policy for both consumers and corporations.1 Below, we try to break down these issues and what it could mean for you.

Breaking Down Some of the Complexities of This Significant Legislation

Energy-Related Changes

The Inflation Reduction Act will create over $300 billion worth of new energy and climate-focused spending that provides incentives for some consumers to make new, clean-energy investments:

Electric Vehicles: There are new incentives within the Inflation Reduction Act for electric vehicle (EV) purchases, but these incentives have a lot of exceptions that could disqualify high-earning individuals looking at expensive EVs. For example, let’s say you have been thinking about buying an EV. Starting in 2023, the Inflation Reduction Act would provide you a full tax credit of $7,500 toward the purchase of a new EV (and starting in 2024, you can transfer this credit to dealers to reduce the price of the car at point of sale). However, you can only obtain these incentives if:

  • you and your spouse earn less than $300,000 annually;
  • you are looking at buying an EV sedan with an MSRP of less than $55,000; and
  • final assembly of the EV and its battery components occurred in North America.

Residential Energy Efficiency: Many homes will need more energy-efficient upgrades to reduce the carbon footprint of America over time. You will need to upgrade your home electrical system to properly supply electricity from your home to your new EV. You may also consider the benefits of placing solar panels on your roof, as well as adding battery storage to store and provide electricity to your home and new EV. This backup supply will be especially convenient if you temporarily lose power during weather events. The good news is, during each year over the next decade, the Inflation Reduction Act offers tax credits to you and others for up to 30% of such primary residence energy efficiency improvements (up to a $1,200 tax credit each year). Such expenditures may also include the following2:

  • a home energy audit
  • new exterior doors
  • new energy-efficient windows
  • electrical upgrades, including breaker boxes
  • qualifying appliances, including air conditioners, water heaters and furnaces (heat pumps qualify for up to a $2,000 tax credit, and do not count against the $1,200 annual limit above)

Health Care-Related Changes

There are two primary potential benefits from the Inflation Reduction Act when it comes to health care: insurance premiums and prescription costs3:

Insurance Premiums: The most immediate health care-related impact is the three-year extension on existing healthcare subsidies in the Affordable Care Act. If you are already participating in this government-sponsored health insurance plan, now you do not need to worry about your health care premiums spiking in 2023.

Prescriptions: The Inflation Reduction Act also puts a cap on out-of-pocket prescription drug costs for people who are covered by Medicare Part D.  The initial cap will go into effect in 2024 at $4,000, and then move down to $2,000 in 2025 and beyond. Also, starting in 2023, Medicare beneficiaries using insulin to treat diabetes will have their insulin costs capped at $35 for a month’s supply.

The federal government also has provided state-by-state health care cost “fact sheets” for more state-specific nuances and details about the Inflation Reduction Act’s health care cost benefits.

Tax-Related Changes

For most consumers, the tax legislation portion of the Inflation Reduction Act is not likely to directly affect them. However, there may be indirect impacts here worth noting:

IRS Funding: The Internal Revenue Service (IRS) will receive a significant budget increase of about $80 billion over the next 10 years, over half of which could target the enforcement of existing tax law4. This may indirectly benefit law-abiding taxpayers if the federal government is successful in raising additional tax revenues without having to raise their taxes to do so.

Corporate AMT: In addition, this legislation will create a new 15% alternative minimum tax (AMT) to ensure that companies (with $1 billion or more in average annual earnings in the previous three years5) cannot use loopholes to avoid paying taxes completely. Again, there are no direct impacts to you, but the potential indirect impact of this change is that large profitable companies may have less free cash flow to pass through to you and their other shareholders (e.g., as dividends or stock buybacks).

Stock Buyback Excise Tax: The Act will also impose a 1% excise tax on the fair market value of shares repurchased by a publicly traded company6. This is a corporate tax that would not directly impact individuals like you. But it is possible that some companies may now revisit their capital allocation strategies (for example, whether they pay larger dividends) for 2023 and beyond. If that happens, it is possible that you and others could see some shift up in their dividend income within their equities portfolio in the future as a result of this legislation.


There are some potential implications of this legislation that could affect your financial plan, whether it be improvements to your primary home, car purchases, health care expenses, or even income within your investment portfolio. Modera is here to help you wade through these legislative changes and assist you in determining an appropriate course of action going forward. For more information, please get in touch with us.

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