Inflation Bill Update: Lower Health Insurance Payments and Why Wait to Update Your Home
DISCLAIMER: All information below represents an interpretation of the Inflation Reduction Act of 2022 and is not to be used as tax advice or to support any financial decisions. As always, consult your tax professional.
This blog is to inform you on highlights in the Inflation Reduction Act of 2022 passed on 8/16/22 related to healthcare and home energy improvements.
Expansion/Extension of the Affordable Care Act
If you are someone who receives healthcare through the healthcare marketplace/exchange (most self-employed and unemployed people) then the bill allows more ability to qualify for reduced payments. These payments are reduced by a credit called the Premium Tax Credit and the ability to qualify for this credit just got easier for low-middle income taxpayers.
What is the premium tax credit?
It’s a credit based on your income that you receive one of three ways:
Receive these credits in advance by reporting your income to the Healthcare Marketplace and receive a reduction in payments based on the income reported.
Receive the credit by completing your tax return for the year and receive it as a reduction in taxes or an increase in your refund at tax time.
Receive a combination of both 1 & 2 where you are able to have reduced payments and a credit at the end of the year when you file your taxes.
What changed with the Inflation Reduction Act?
No More Income Threshold
Prior to the pandemic the threshold to qualify for the Premium Tax Credit was income between 100% and 400% of the poverty level based on household size. However, the recent bill allows those who make more 400% poverty level to qualify.
But don’t get too excited because the credit is STILL limited by income…
Higher Premium Tax Credits aka Lower Monthly Premiums
Without getting into the weeds about how to calculate the premium tax credit here is what you need to know... The credit is the difference between what you can “afford” and the cost of your healthcare.
What you can afford according to the Affordable Care Act is calculated by taking your household income, seeing where it falls on the poverty line, and then applying the “premium percentage” to your income. The “premium percentages” are what changed in the new Act to be more favorable for everyone.
IN SIMPLER WORDS: What the Affordable Care Act deemed as affordable in the past was still unaffordable, so they increased credits to offset this and now more people will received $0 or reduced premiums. If you’ve always received credits, you’ll pay even less going forward.
What do you need to do now?
No action is required on your part except to update your income with the marketplace when you have large changes to income. If you receive credits based on incorrect income you’ll have to pay them back on your tax return. Alternatively, if you missed out on credits throughout the year you’ll receive them on your tax return.
Updating your home with energy saving improvements
A large part of the Inflation Reduction Act was to address climate change – this is one of the areas it extended and expanded.
Small Home Improvements
In the past you were able to have a credit up to $500 for home improvements, which you could only receive once in your lifetime (boooooo).
Beginning in 2023, you can receive up to $1,200 annually! The amount depends on a few things such as cost and type of improvement. Here is a summary of the amounts (all are limited to 30% of the total cost):
$150 for home energy audits;
$250 for an exterior door ($500 total for all exterior doors);
$600 for exterior windows and skylights; central air conditioners; electric panels and certain related equipment; natural gas, propane, or oil water heaters; natural gas, propane, or oil furnaces or hot water boilers; and
$2,000 for electric or natural gas heat pump water heaters, electric or natural gas heat pumps, and biomass stoves and boilers (for this one category, the $1,200 annual limit may be exceeded).
Residential Clean Energy Credit – for qualifying energy systems (solar, wind, geothermal or fuel cell power)
This credit was set to expire in 2024 and has now been extended through 2034. You can receive up to 30% from 2022-2032 in credits. The % drops to 26% for 2033 and 22% for 2034.
Huh? So let’s say you purchase solar panels that cost $100,000. You are now able to get a credit of $30,000 (30% of $100k) on your tax return. Eventually these % will drop but we have until 2032 with 30%!
What do you need to do now?
Wait! Don’t invest in the home improvements and energy systems until after January 1, 2023 to qualify for the best credits.
Alternative Fuel Refueling Property Credit (credit for equipment and installation to charge an electric car)
The credit is extended through 2032 and will be in the amount of up to 30% of the cost or $1,000 – whichever is lower. Remember your state and city might have rebates too!
What do you need to do now?
Provide documentation for the cost of the installation to your tax preparer!
