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Inflation, inflation, inflation — it’s the topic living rent free in everyone’s mind. As you’re probably aware, President Biden signed the Inflation Reduction Act into law to lessen its effects on Americans. The bill was introduced as an amendment to the Build Back Better Act, addressing the rising inflation that has plagued the economy for months.
Simply put, inflation is the overall price increase on goods and services. The more things cost, the less the purchasing power of money. When you go for your regular pantry stock-up, you can’t help but notice food grocery prices rising. If you’re staying within the means of a budget, you’ll ultimately resort to buying less. That dollar just doesn’t stretch as far.
But what exactly is in the Inflation Reduction Act and, more importantly, how will it affect you? We’re breaking down what you need to know below.
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What does the Inflation Reduction Act affect?
While we’d love to tell you the bill directly lowers the cost of tangible everyday things, that isn’t the case. However, it does impact other necessities involved in your budget.
The Inflation Reduction Act:
- Lowers health insurance premiums
- Offers more solar panel tax credits
- Provides rebates for energy-efficient appliances
- Lowers drug prices for Medicare recipients
- Enables more tax credits for electric cars
Now that we know the basics, let’s unpack what all of this means.
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Some individual health insurance premiums will be lower.
People who don’t have access to health insurance through their employer may purchase a policy through the Healthcare Marketplace. Here, they may qualify for a subsidy if they earn below a certain amount.
The amount the government will help cover health insurance premiums depends on the person’s income and household size. Those with lower incomes and/or larger households usually receive more substantial subsidies than those with higher incomes, smaller households, or both.
The 2021 American Rescue Plan Act expanded the number of consumers eligible for subsidies. It did so by increasing the maximum income level to 400% of the federal poverty guidelines. That law only extended the poverty guidelines for 2021 and 2022, but the Inflation Reduction Act keeps it going through 2025.
Without it, about 3 million people would lose health insurance coverage and almost 9 million people would have had their subsidy decreased.
What does the Inflation Reduction Act do for solar panel credits?
The Inflation Reduction Act has extended and expanded the tax credit homeowners can use if they install solar panels. This tax credit was supposed to expire in 2023 but is now continuing until 2034. Currently, the credit is worth 30%, while it was only worth 26% between 2020 and 2022.
Ultimately what this means is homeowners who install solar panels can get a credit worth 30% of the total cost, with no limit. Let’s say you spend $15,000 installing solar panels — you’ll get a $4,500 tax credit. This can provide a huge cost savings, and it’s great for the environment.
A tax credit is a helpful way to lower your tax bill. For example, if you owe $3,000 in taxes and have a $2,500 tax credit for installing solar panels, you’ll only owe $500 at tax time. If your solar panel tax credit is more than what you owe in taxes, the remaining amount may be carried over to next year’s tax season.
What is the tax credit for purchasing an electric car?
Car buyers who purchase a new or used electric vehicle will get a sizable tax credit. The credit is $7,500 for new electric cars and $4,000 for the purchase of a used electric vehicle.
Before this bill, only those who purchased a new electric vehicle were eligible for any tax credits. Extending a tax credit incentive to used electric car buyers is a major bonus. Additionally, it covers electric models from popular manufacturers, like Tesla and GM, which were previously excluded.
What are the rebates for energy-efficient appliances?
Consumers who buy energy-efficient appliances like stoves, water heaters, and ovens may be eligible for special rebates.
These rebates are limited to families with a household income of 150% of the federal poverty guidelines or less. And the maximum total rebate is $14,000.
How does the Inflation Reduction Act provide lower drug prices for Medicare recipients?
Starting in 2026 seniors will get better prices for 10 common prescriptions. The federal government will be required to negotiate the pricing on these medications, resulting in lower costs for Medicare Part B and Part D recipients. And over the next few years, the government will reduce the cost of more prescription drugs.
Beginning in 2024 people enrolled in Medicare Part D will have an annual cap of $2,000 for prescription drugs. In addition, those on Medicare who take insulin will have a $35 monthly cap. This is a huge win for those who rely on it.
Will the Inflation Reduction Act Actually Reduce Inflation?
This is a hotly debated question. Despite the name many experts believe the bill won’t significantly reduce inflation. Consumers may still see high prices at the pump, grocery store, and everywhere else they spend money. In an effort to reduce inflation, some anticipate the Federal Reserve will continue to increase interest rates, which will impact prospective homeowners.