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Inflation Reduction Act of 2022 – What’s in the Bill, What Does It Cost & What Does It Mean for You?

At the start of 2022, President Biden’s signature Build Back Better Act appeared to be dead in the water. Opposition from Senate Republicans meant it could only pass with unanimous support from Democrats. So when Senator Joe Manchin announced he would not vote for it, that looked like “game over.”

But the following summer, Senate Democrats announced they had reached a deal on a new bill. Dubbed the Inflation Reduction Act (IRA), it contained many of the same provisions as Build Back Better on climate, energy, health care, and taxes.

On August 16, 2022, President Biden signed the Inflation Reduction Act into law. Now millions of Americans are asking themselves what this new legislation will mean for them and for the nation as a whole.

What Does the Inflation Reduction Act of 2022 Do?

The Inflation Reduction Act is a huge, far-reaching bill. Just about all of Democrats’ major policy goals, from climate to health insurance to taxes, have a place in it. 

Federal Deficit Reduction

Both the White House and Senate Democrats claim that the Inflation Reduction Act will cut the federal budget deficit by hundreds of billions of dollars. However, it’s not clear yet how accurate this claim is.

The Congressional Budget Office (CBO) is still working on a final estimate of the law’s impact. A preliminary report, based on an earlier version of the bill, estimated it would cut the deficit by $102 billion from 2022 through 2031. 

However, this total doesn’t count $204 billion in increased tax revenues from beefed-up IRS tax enforcement. Together, that adds up to around the $300 billion Senate Democrats are claiming.

The CBO says it will need a few weeks to complete its analysis of the actual law. It should be done around early September. The Committee for a Responsible Federal Budget says the final version will raise more revenue, but probably will not save as much on prescription drug costs. So its impact on the deficit could be greater or smaller than the original $300 billion estimate.

Climate & Energy

The IRA spends close to $370 billion on fighting climate change — the biggest investment in climate the U.S. has ever made. Experts say it will put the U.S. on track to cut its greenhouse gas emissions about 40% from 2005 levels by 2030. It doesn’t meet President Biden’s goal of cutting emissions in half, but it puts us within striking distance of it.

Investments in Renewable Energy

Currently, the U.S. is lagging behind other developed nations in the clean energy field. This law seeks to remedy that. It includes an array of incentives for clean energy development, including loans, grants, new tax credits, and expansions and extensions of existing credits.

Among other things, the law promotes:

  • Manufacturing of solar panels, wind turbines, and batteries
  • Mining of critical minerals needed to make solar panels and batteries
  • Manufacturing of electric vehicles and other clean vehicles
  • Various forms of clean energy production, including solar, wind, biomass, geothermal, and nuclear energy
  • Production of alternative fuels such as biodiesel, clean hydrogen, and hydrogen fuel cells
  • Research into new clean energy sources

Along with funding these clean energy technologies directly, the law supports them by creating a stable market for them. It sets aside over $9 billion for purchases of American-made clean technologies, including $3 billion to buy zero-emission vehicles for the U.S. Postal Service.

The law also streamlines the permitting process for new energy projects. This will help speed along clean energy projects that have often been held up by red tape. However, it also eases the development of fossil fuel projects, such as a natural gas pipeline in West Virginia.

Clean Energy Tax Credits and Rebates for Consumers

Some of the IRA’s clean energy tax credits go directly to consumers to help them make their homes and vehicles greener. In addition, the law provides rebates for low-income and middle-income consumers to cut their up-front costs. 

Starting in 2023, you can get tax credits and rebates for:

  • Replacing fossil fuel-powered appliances or heating systems with electric ones
  • Adding rooftop solar panels.
  • Purchasing energy-efficient appliances
  • Upgrading your home’s energy efficiency (for instance, adding better insulation)
  • Replacing your heating system with an energy-efficient heat pump
  • Purchasing a new or used electric vehicle

In addition to these incentives for homeowners, the law provides $1 billion in funding to make affordable housing more energy efficient.

Other Climate Provisions

Along with its investments in clean energy, the Inflation Reduction Act has a grab bag of other provisions aimed at reducing greenhouse gas emissions. These include:

  • A methane fee that penalizes companies for releases of this potent greenhouse gas.
  • Funding for energy efficiency and emissions reduction at industrial sites.
  • Environmental justice provisions to help disadvantaged communities monitor and clean up pollution and build resilience against climate change.
  • Grants to install zero-emissions equipment and technology at the nation’s ports.
  • Incentives to replace dirty heavy-duty vehicles, such as school buses and garbage trucks, with clean vehicles.
  • Funding to support environmental conservation, climate-friendly agriculture, sustainable forest management, coastal habitat management, and drought resiliency.
  • Incentives for air pollution monitoring and carbon capture at fossil fuel plants.

Health Care

Several of this new law’s provisions relate to health care. These changes affect three major government health programs: Medicare, the Children’s Health Insurance Program (CHIP), and the Affordable Care Act (ACA).

Expanding Medicare Benefits

The law includes several new perks for Medicare beneficiaries. Starting in 2023, they can’t be required to pay more than $35 per month for insulin. Also starting in 2023, they no longer bear any share of the cost for vaccines. (This benefit applies to CHIP users as well.)

Starting in 2024, Medicare users cannot be required to pay any charges for prescription drugs that would cause them to go over their annual out-of-pocket spending cap. And starting in 2025, their out-of-pocket drug costs are capped at $2,000.

In addition, the law limits how fast drug makers can raise prices for Medicare users. For any brand-name drug that has no generic version and costs $100 or more per year, the price must not rise faster than the rate of inflation. If it does, users are entitled to a rebate.

Prescription Drug Pricing Reform

Under the Inflation Reduction Act, Centers for Medicare & Medicaid Services (CMS) will be allowed to negotiate prices for prescription drugs for the first time. However, this provision doesn’t apply to all drugs, and it doesn’t start right away. 

Beginning in 2026, CMS will be able to negotiate prices for the 10 brand-name drugs (with no generic equivalent) that cost the Medicare program the most. This number increases to 15 medications in 2027 and to 20 in 2029. This change will further bring down drug costs for Medicare users, but it’s not clear yet for which drugs.

The law also delays implementation of the Prescription Drug Rebate Rule. This rule, released under the Trump administration, would have changed the rebates drug makers offer to Medicare pharmacy benefit managers (PBMs). 

When a PBM agrees to include a drug in the Medicare Part D formulary, the drug makers offer the program a rebate on the cost. This helps control drug prices for Medicare users. Under current law, these rebates are not subject to federal anti-kickback laws. 

The Trump-era rule would have changed this, effectively eliminating the use of rebates as a tool for controlling prices. A 2018 CMS report found that this rule would cost the government $196 billion over 10 years.

This rule was originally scheduled to take effect in January 2022. However, the Biden administration delayed it until the start of 2023. Now, under the Inflation Reduction Act, the rule will not take effect until 2032.

Extending ACA Health Care Subsidies

The ACA, also known as Obamacare, gave low- and middle-income people subsidies to buy health insurance from state health insurance exchanges. Under the law, households earning up to 400% of the federal poverty level could get a subsidy covering all or part of their health insurance premiums. 

In 2021, Congress expanded these subsidies as part of the American Rescue Plan. That law limited the cost of ACA health insurance premiums to 8.5% of income for all Americans. It also increased the size of the subsidies for people who already qualified for them. 

However, that benefit was set to expire at the end of 2022. The Inflation Reduction Act extends the expanded subsidies through the end of 2025. The Department of Health and Human Services estimates that without this extension, about 3 million Americans would have lost their insurance coverage.


Programs like these cost money — and since the bill doesn’t increase the deficit, all that money comes from taxes. Most of those tax dollars come from corporations. There are no new taxes for individuals or households making less than $400,000 per year.

15% Corporate Minimum Tax

Currently, the top corporate tax rate is 21%. However, dozens of major companies use loopholes that allow them to pay much less. According to the White House, 55 big corporations paid no tax at all in 2020.

To get around this problem, the law creates a corporate minimum tax similar to the alternative minimum tax for individuals. With a few exceptions, must pay at least 15% of their earnings in taxes.

However, this new minimum applies only to corporations with over $1 billion in income. Tax deductions for small businesses and freelancers are not affected.

Loss Limitation Extension

The IRA also extended the limits on a tax break for pass-through businesses. These businesses don’t pay corporate income tax. Instead, they “pass through” the income to their owners, who report it on their individual tax returns.

Until recently, this structure allowed owners to claim business losses as a deduction against their non-business income. They could take out a business loan and claim that as a deduction to reduce the tax they paid on their salary, bonuses, and investment income. This loophole was very useful for real estate moguls, who could easily rack up huge “losses” on paper. 

The 2017 Tax Cuts and Jobs Act limited this deduction. Pass-through business owners could no longer claim more than $250,000 in business losses on an individual tax return or $500,000 on a joint return. Those limits have since gone up to $270,000 and $540,000 to adjust for inflation.

However, this limitation was due to expire at the end of 2026. The Inflation Reduction Act extends it through 2028. According to the Joint Committee on Taxation, this provision will raise over $50 billion in revenue.

Stock Buyback Fee

In a stock buyback, a company buys shares of its own stock and takes them off the market. Doing this increases the value of all the remaining shares because each one is a bigger percentage of the company. It’s an easy way to give share value a quick boost. 

This is good for shareholders. It’s even better for top executives, who get a lot of their pay in the form of company stock. But it does nothing for the company’s workers.

Currently, companies pay no tax on stock buybacks. The Inflation Reduction Act changes this by imposing a new 1% excise tax on them. An excise tax is a type of tax similar to a sales tax, except it applies only to specific items, such as liquor or gasoline.

This could raise billions in revenue, but that’s not its main point. The goal is to discourage stock buybacks by making them more costly. That encourages companies to shift their investments toward equipment, salaries, and other things that actually make the business stronger. 

However, critics say this could have an unintended effect. Currently, stock buybacks make the stock of big companies more expensive. This encourages investors to put less money into them and more into younger, growing companies that need the money. If this tax keeps big companies’ stock more affordable, it could deprive small companies of capital. 

Another side effect of this fee could be an increase in stock dividends. Currently, one purpose of stock buybacks is to provide a reward for shareholders. If this becomes more expensive, companies could choose to pay out more in dividends instead.

IRS Tax Enforcement

Some of the revenue in the Inflation Reduction Act comes not from new taxes but from better tax collection. According to the Internal Revenue Service (IRS), over 16% of all taxes go unpaid each year. Between 2011 and 2013, this “tax gap” cost the government about $400 billion.

The IRA gives the IRS an additional $80 billion for “taxpayer services and enforcement.” Most of this money will help the IRS go after tax cheats. According to the CBO, this could bring in another $204 billion in revenue.

How Will the Inflation Reduction Act Benefit You?

Some benefits of the Inflation Reduction At are long-term and indirect. For instance, the White House says it will create millions of high-paying jobs in clean energy. That will strengthen the economy, helping everyone. 

But the IRA has more immediate perks for American consumers as well. It could help you save money on a car, on home heating, or on health care. And unless you’re one of the wealthiest Americans, it won’t raise your taxes.

Lower Energy Costs

The IRA will help bring energy costs down in two ways. First, its investments in energy efficiency will help consumers save money on heating, transportation, and electricity. 

At the same time, it will push the electricity sector away from fossil fuels, bringing down the demand for natural gas. That will mean lower gas prices for those who still rely on gas for home heating. According to an analysis by the Rhodium Group, these changes will save the average household around $500 a year on utility bills.

Folks who take advantage of the IRA’s incentives to invest in clean energy and energy efficiency upgrades stand to save even more. For instance, replacing a gas-powered car with an electric vehicle could save you over $950 a year on fuel. 

If you live in a cold climate, replacing your furnace with a heat pump could save you $450 to $900 per year. And adding solar panels to your roof could save you $9000 over their lifetime, or around $300 per year.

Tax Credits for Switching to Green Energy

If you’ve been thinking about switching your home or vehicle to green energy, this law will make it cheaper. Everyone qualifies for tax credits, and low- and middle-income consumers also qualify for rebates to reduce their up-front costs.

As an example, consider a family of three that owns a home in Indianapolis and has an income of $75,000 per year. Starting in 2023, they could get:

  • A $7,500 tax credit for a new electric vehicle or $4,000 for a used one
  • Up to $10,000 in up-front discounts and tax credits for a heat pump HVAC system
  • Up to $3,750 in up-front discounts and tax credits for a heat pump water heater
  • Up to $4,600 in up-front discounts and tax credits for upgrades to an electrical panel
  • Up to $2,500 discount on upgrades to wiring

To see how much your family could save, check out the savings calculator from Rewiring America. Enter your location, income, and some basic info about your household, then click Calculate. It shows which tax credits and rebates apply to you and when they will be available.

Improved IRS Customer Service & Tax Return Processing

The extra money provided to the IRS for tax audits won’t affect most taxpayers. Most of the tax gap comes from the ultra-wealthy, so the IRS is unlikely to invest the money in auditing more low-income and middle-class Americans.

However, the new IRS funding could affect you in other ways. Along with improving tax enforcement, the IRS can use the money to update its systems and improve operations. This could reduce delays in processing, helping you get your tax refund faster.

It could also help shorten response times for IRS customer service. That means that if you have any problems with your tax return in future years, you may have less trouble getting through to the IRS to fix them.

In addition, the IRS is getting $15 million to develop a free direct e-file tax return system. Currently, IRS offers Free File only to lower-income taxpayers, and even many of them don’t use it. Taxpayers with higher incomes can file taxes for free by filling out an electronic version of a paper tax return, but the service isn’t user-friendly. 

An e-file tax system that’s open to all could be a game-changer, eliminating the need for most people to use tax preparation software. However, this system will probably take years to implement. And it’s sure to face still opposition from tax preparers along the way.

Prevents Higher Health Care Premiums

If you’re one of the 14.5 million people who bought health insurance through a state marketplace in 2022, there’s good news for you. The increased subsidies Americans like you received for coverage will now last for at least another three years.

According to the U.S. Department of Health and Human Services, over 10 million Americans would have seen their premium tax credits shrink or disappear without this extension. Close to 9 million would have received a lower credit, costing them an average of $406 per year. 

Another 1.5 million Americans would have lost their subsidies entirely. They would have had to pay an average of $3,277 more for health insurance premiums. But thanks to the Inflation Reduction Act, you can keep that money in your pocket up through 2025.

No Tax Increases for Those Making Under $400,000/Year

There are a lot of new taxes and closed loopholes in the Inflation Reduction Act. However, according to the White House and Senate Democrats, taxes will not rise for any family earning under $400,000 a year.

There’s still a chance you could feel the effect of the new law’s tax increases indirectly. If companies are less profitable, they’ll be less able to pay high wages. However, economists say this effect will be quite small.

What Will the Inflation Reduction Act Cost?

The CBO is still calculating the exact cost of The Inflation Reduction Act. However, Senate Democrats estimate the law will cost a total of $437 billion in new spending and tax credits. 

That’s a lot of money, but the IRA more than pays for itself. It raises an estimated $737 billion in health care savings and increased tax revenue. And it does all that without raising the average taxpayer’s costs one penny.

The numbers aren’t final yet, but a rough estimate of the bill’s major costs and benefits looks like this:

Energy Security and Climate Change
Tax credits for clean electricity and reducing carbon emissions-$98 billion
Clean fuel tax credits-$19 billion
Clean energy incentives for individuals-$37 billion
Clean vehicle tax credits-$14 billion
Investment in clean energy manufacturing and energy security-$37 billion
Incentives for clean electricity and clean transportation-$65 billion
Conservation, forestry, and rural development-$35 billion
Reinstatement of Superfund$12 billion
Health Care
Extension of expanded ACA subsidies-$64 billion
Expanded Medicare and CHIP benefits-$34 billion
Delayed implementation of Drug Rebate Rule$122 billion
Inflation cap on drug prices for Medicare Part D$101 billion
Negotiation of drug prices for Medicare Part D$99 billion
15 percent corporate minimum tax$222 billion
Excise tax on stock buybacks$74 billion
Increased IRS funding-$80 billion
Revenue from improved IRS tax enforcement$204 billion 
Loss limitation extension$53 billion

Will the Inflation Reduction Act Really Reduce Inflation?

Ironically, one thing the Inflation Reduction Act is unlikely to do is have a significant impact on inflation. It will reduce energy and health care costs, and reducing the deficit will also help bring prices down a little.

However, economists think these effects will be modest at best, and they won’t show up quickly. The CBO described the IRA’s impact on inflation for 2022 and 2023 as “negligible.”

So, despite its name, the Inflation Reduction Act won’t do much to bring down the cost of living over the next year or two. That task will still fall mainly on the shoulders of the Federal Reserve.

Still, the bill does help bring down costs in specific areas. The clean energy incentives, health care subsidies, and changes to prescription drug pricing will help many American consumers. For instance, making electric cars more affordable makes them an option for more people hoping to avoid high gas prices.

Final Word

Even if the IRA does little to control inflation right now, it will save American consumers a lot of money in the long run. Aside from lowering their health care and energy bills, it will also limit the devastating and enormously costly effects of climate change and pollution from fossil fuel use.

People seldom talk about climate change in terms of its dollar cost, but it’s a big one. The warming climate increases the risk of costly natural disasters such as hurricanes, floods, and wildfires. It also takes a toll in terms of heat-related illness. And the burning of fossil fuels also increases other health problems not related to climate, such as asthma.

Thanks to the Inflation Reduction Act, all these problems will be less severe in the future than they would be without it. That will add up to a big difference for your finances and for your quality of life.

Amy Livingston is a freelance writer who can actually answer yes to the question, "And from that you make a living?" She has written about personal finance and shopping strategies for a variety of publications, including,, and the Dollar Stretcher newsletter. She also maintains a personal blog, Ecofrugal Living, on ways to save money and live green at the same time.