What the Inflation Reduction Act Means for Income Taxes – VERIFYThis.com | Vette Leader

Legislation imposes a minimum tax of 15% on large corporations, but the Inflation Reduction Act does not include individual income tax increases.

The Inflation Reduction Act of 2022, which includes some tax credits for Americans, is awaiting signature from President Joe Biden.

But how might the legislation affect you when filing your next tax return? Some people on social media claim that the Inflation Reduction Act is a “tax increase for small and medium-sized businesses”. others say Middle-class Americans don’t pay higher income taxes.

Several VERIFY readers have also reached out to the team to ask if the Inflation Reduction Act will increase individuals’ income taxes.

THE QUESTION

Will the Anti-Inflation Act Raise Income Taxes for the Middle Class?

THE SOURCES

THE ANSWER

No, the Inflation Reduction Act does not levy income taxes on the middle class. There are no individual income tax increases in the law at all.

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WHAT WE FOUND

Although President Biden has proposed income tax increases in the past, the Inflation Reduction Act does not include individual income tax increases at all, Howard Gleckman, a senior fellow at the Urban-Brookings Tax Policy Center, told VERIFY.

The full legal text of the Inflation Reduction Act 2022 makes no mention of income tax or any other type of tax levied on individuals.

In a joint statement, former US Treasury secretaries from both Democratic and Republican governments reiterated that income taxes on America’s middle class will not rise.

The legislation requires a minimum tax of 15% on corporate book income for companies with profits over $1 billion applicable to tax years beginning after December 31, 2022. The Congressional Joint Tax Committee estimates that only about 150 companies annually would be affected by the proposed tax.

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That means these big companies would pay 15% of the income they report to shareholders.

“Because there can be large discrepancies between income reported in financial statements and income tax returns, minimum book income tax can be higher than regular income tax,” the Tax Policy Center explains.

According to Gleckman, the legislation also provides a tax for companies that buy back stock from their shareholders.

Although there are no increases in individual income taxes, some critics of the Inflation Reduction Act say the tax on large corporations could adversely affect some middle-class Americans, Gleckman said.

“Most analysts … when we look at the distribution of tax changes, they assume that corporations don’t actually pay the taxes, that ultimately the tax will either be paid by shareholders or by employees,” he said. “So a company that has less after-tax income has less money to pay its workers. A company that has less after-tax income because its taxes have gone up, the value of its shares goes down.”

However, the increased corporate income tax does not mean that a person owes more money on their income tax return.

The former finance ministers defended the additional taxes levied on companies, saying they “reflect not increases in the corporate tax rate, but the recovery of revenue lost through tax avoidance and provisions in favor of the wealthiest”.

Along with the increase in corporate income taxes, the Inflation Reduction Act “changes, expands, and creates a variety of tax credits” for Americans, primarily through 2031 or 2033, according to the Tax Foundation.

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The legislation also expands on a Trump-era law that caps the amount of losses entrepreneurs can write off from their taxes. The law was supposed to expire in 2027, but the bill is keeping it alive until 2029.

There are about two dozen energy-related tax credits, including ones for people who buy electric vehicles and credits for people who buy health insurance, Gleckman said. But even these credits do not appear on your tax return.

“Even though it’s called a tax credit, the person buying insurance – the taxpayer – never sees it. The money actually goes to the insurance company, and the insurance company reflects the value of that loan by lowering the premium of the person buying the insurance policy,” Gleckman said. “So it never shows up. There is no line on yours [Form] 1040 labeled ‘Bonus Tax Credit’.”

According to Gleckman, if a person buys an electric vehicle, the dealership will deduct $7,500 from the price of the car — but the credit won’t count on their income tax return.

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