How the (New) Inflation Reduction Act Affects You


Further muddying the waters of financial jargon, Congress last month passed the Inflation Reduction Act (yes IRA!) which became law with the President’s signature. While the headline was that the IRA aims to reduce inflation, other changes include electric vehicle credits, renewable energy credits, health insurance and Medicare costs.

David GardnerFor the camera

• Credits for electric vehicles. Prior to the IRA’s enactment, electric vehicle credits had completely disappeared for Tesla and GM EV buyers and were set to expire for Toyotas. Starting next year, electric vehicle tax credits will be available from all car manufacturers, but with some important changes. Although most of the provisions come into effect next year, as of today you can only receive a tax credit if the final assembly of the vehicle has been
in North America. A list of eligible vehicles is available here (

From 2023, manufacturer limitations on EV credits will be abolished (welcome GM, Tesla and Toyota) but will be replaced by other requirements. As before, the maximum federal tax credit will be $7,500 and is extended to 2032. Now for the changes. First, a vehicle’s MSRP cannot exceed $55,000 for a car or $80,000 for a truck or SUV, which will make it difficult for those considering a Lucid or Rivian. Second, the IRA institutes an income limit of $150,000 for single filers and $300,000 for married filers who file jointly to receive the full credit.

Starting next year, additional qualifications will come into effect to receive the full federal tax credit. There will be an essential mineral requirement that will incentivize the extraction, processing and recycling of these materials domestically or by a country with a free trade agreement with the United States. Additionally, there is a battery component requirement that rewards manufacturing or assembly in North America. These two requirements become stricter every year. Ultimately, vehicle buyers will look to manufacturers to comply with these requirements so they can collect the maximum amount of credit.

Finally, EV credits will be available next year for the first time for used vehicles purchased from a dealer starting at $4,000 or 30% of the sale price, whichever is less. There are stricter income requirements for this credit with phase-outs starting at $150,000 for joint filers of married people and $75,000 for single filers. Also from 2024, used and new EV credits can be transferred to the car dealership, reducing the selling price.

• Residential Clean Energy Credits. As complex as new EV credits are, extending residential energy credits is simpler. Energy-efficient upgrades, including solar power generation, water heating, and storage batteries, are eligible for a 30% federal tax credit through 2032. This credit was to be reduced l next year, this extension is therefore important. Although this credit is non-refundable, meaning it cannot reduce your tax bill below zero, you can make
unused credits are carried forward to subsequent years.

• Changes to Medicare and Medicare. The Affordable Care Act revolutionized the availability and cost of guaranteed issue health insurance outside of the workplace. Before the pandemic, Medicare subsidies were only available to those whose income was 400% of the federal poverty level, or about $111,000 for a family of four this year. The IRA is continuing to expand these subsidies for health insurance available in the state or federal marketplace ( so that families never have to spend more than 8.5% of their income on insurance sickness. These increased subsidies will continue through 2025 and mean that nearly everyone covered by ACA health insurance plans will most likely receive at least some federal tax credits.

Finally, Medicare beneficiaries will likely see their maximum drug spend decrease over time to $2,000 per year in 2025. Additionally, Medicare will have the ability to negotiate with pharmaceutical companies to reduce prices beginning in 2025 on a limited number of drugs.

David Gardner is a Certified Professional Financial Planner with Mercer Advisors practicing in Boulder County. The opinions expressed by the author are his own and are not intended to serve as specific financial, accounting or tax advice. They reflect the author’s judgment at the date of publication and are subject to change. Some of the content provided comes from third parties that are not affiliated with Mercer Advisors. The information is believed to be accurate but is not guaranteed or warranted by Mercer Advisors.


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