#ACA

By:  Michael Allbee, CFP®, Senior Portfolio Manager

Thanks to the Inflation Reduction Act, the Act provides near-immediate, tangible benefits American families by lowering costs for home energy, new vehicles, health coverage, and prescription drugs. We previously discussed some of the significant provisions in the Act but we wanted to elaborate on what the Inflation Reduction Act means for you as discussed below (not an all-inclusive list).

Healthcare:

• The American Rescue Plan, which Congress passed in March 2021, increased the ACA premium tax credits and expanded eligibility above 400% of the federal poverty level (FPL) for 2021 and 2022. The Inflation Reduction Act extends those expanded subsidies through 2025.

• Caps the amount that seniors will have to pay for prescription drugs they buy at the pharmacy at $2,000 a year.

• Caps the amount that seniors will have to pay for insulin at $35 for a month’s supply.

• Provides access to a number of additional free vaccines, including the shingles vaccine, for Medicare beneficiaries.

• Will further lower prescription drug costs for seniors by allowing Medicare to negotiate the price of high-cost drugs and requiring drug manufacturers to pay Medicare a rebate when they raise prices faster than inflation.

Energy-Related Tax Credits:

• The Nonbusiness Energy Property Credit was extended through 2032 and renamed the Energy Efficient Home Improvement Credit. The credit will be equal to 30% of the costs of all eligible home improvements made during the year. This is now an annual limit, not a lifetime limit. The maximum tax credit was substantially raised: Cap raised to $1,200 per year for qualifying property on or after January 1, 2023, compared to a lifetime $500 cap previously. Savvy households can spread qualifying home improvement spending over a 10-year period, receiving up to $12,000 back in taxes, compared to $500 previously.

The annual limits for specific types of qualifying improvements will be:

• $150 for home energy audits;
• $250 for any exterior door ($500 total for all exterior doors) that meet applicable Energy Star requirements;
• $600 for exterior windows and skylights that meet Energy Star most efficient certification requirements;
• $600 for other qualified energy property, including central air conditioners; electric panels and certain related equipment; natural gas, propane, or oil water heaters; oil furnaces; water boilers;
• $2,000 for heat pump and heat pump water heaters; biomass stoves and boilers. This category of improvement is not limited by the $1,200 annual limit on total credits or the $600 limit on qualified energy property; and
• Roofing will no longer qualify.

• The Residential Energy Efficient Property Credit, now called the Residential Clean Energy Credit, was previously scheduled to expire at the end of 2023 but has been extended through 2034. The Inflation Reduction Act also increased the credit amount, with a phaseout of the applicable percentage (30% between 2023-2032, 26% for 2033, and 22% for 2034). Starting in 2023, the new credit will apply to battery storage technology with a capacity of at least three kilowatt hours.

• Starting in 2023, a tax credit of up to $7,500 is available for the purchase of new clean electric vehicles meeting certain requirements. The credit is not available for vehicles with a manufacturer’s suggested retail price higher than $80,000 for sports utility vehicles and pickups, $55,000 for other vehicles. The credit is not available if the modified adjusted gross income (MAGI) of the purchaser exceeds $150,000 ($300,000 for joint filers and surviving spouses, $225,000 for heads of household). Starting in 2024, an individual can elect to transfer the credit to the dealer as payment for the vehicle.

• Similarly, a tax credit of up to $4,000 is available for the purchase of certain previously owned clean electric vehicles from a dealer. The credit is not available for vehicles with a sales price exceeding $25,000. The credit is not available if the purchaser’s MAGI exceeds $75,000 ($150,000 for joint filers and surviving spouses, $75,000 for heads of household). An individual can elect to transfer the credit to the dealer as payment for the vehicle.

While these changes may not impact your individual tax bill, please contact us if you want to continue the conversation around tax planning and how these tax credits may save you money at tax time.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

Beginning on November 1, 2020, individuals (including families) may apply for new health insurance, switch to a different health-care plan, or re-enroll in their current plan through a Health Insurance Marketplace under the Affordable Care Act (ACA). The open enrollment period for 2021 health coverage ends on December 15, 2020.

If you don’t have health insurance through a job, Medicare, Medicaid, the Children’s Health Insurance Program (CHIP), or another source that provides qualifying health coverage, the Marketplace can help you get covered. If you have job-based insurance, you can buy a plan through the Marketplace, but you’ll pay full price unless your employer’s insurance doesn’t meet certain standards. Most job-based plans do meet the standards. If you have Medicare, you can’t switch to Marketplace insurance, supplement your coverage with a Marketplace plan, or buy a Marketplace dental plan.

Individuals can use Health Insurance Marketplaces to compare health plans for benefits and prices and to select a plan that fits their needs. December 15 is the deadline to enroll in or change plans for new coverage to start January 1, 2021. For those who fail to meet the December 15 deadline, the only way to enroll in a Marketplace health plan is during a special enrollment period. To qualify for special enrollment, an individual must have a qualifying life event such as a change in family status (for example, marriage, divorce, birth, or adoption of a child), change in residence, or loss of other health coverage (e.g., loss of employer-based coverage, loss of eligibility for Medicare or Medicaid). Also, only plans sold through a Health Insurance Marketplace qualify for cost assistance.

Starting November 1, you can apply for health insurance coverage in a number of ways: online (through the federal Marketplace website,  healthcare.gov), by phone, through an agent/broker, through certified enrollment partner websites, or with a paper application.

Changes to the Affordable Care Act for 2021

There are several policy changes related to the pandemic that may affect enrollment and the cost of insurance, including:

• Many states run their own marketplaces and have established special enrollment periods due to the virus. Check with your state’s department of insurance for specific open enrollment dates.

• Some marketplace insurers offered additional premium discounts or rebates to policyholders in 2020. These discounts will not impact consumers’ eligibility for premium tax credits, nor affect the tax reconciliation process (an adjustment in your premium cost based on changes to your income).

• People who purchased an individual plan of insurance outside of the marketplace and who experience a decrease in income that makes them eligible for advanced premium tax credits, may be eligible to use the special enrollment period to enroll in a marketplace plan. However, this may not be available in all states. Contact your state insurance department to determine eligibility.

• Eligible organizations including employers, insurers, and universities may exclude contraceptive coverage on the basis of “sincerely held religious beliefs or moral convictions.”

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2020