President Joe Biden signed the Inflation Reduction Act into law on Aug. 16. It’s a comprehensive piece of legislation focused on addressing climate change, increasing taxes on large corporations and reducing health care expenses.
How much the law will actually do to ease soaring inflation remains uncertain.
An examination by the University of Pennsylvania’s Penn Wharton Budget Model concluded the bill might ultimately shave about 0.1 percentage points off inflation in roughly five years — a change the analysts called “statistically indistinguishable from zero.”
Even if the act doesn’t instantly bring down everyday prices for items like groceries, it still includes a number of measures that could help you keep more money in your pocket.
The most substantial savings are aimed at larger eco-friendly purchases and energy-saving home improvements, though it may take time before most households see the benefits.
Below are four ways the Inflation Reduction Act might influence your family’s finances.
1. Rebates and Tax Credits for Energy-Efficient Home Upgrades
Tax incentives and rebates could reduce homeowner costs by more than $14,000 for certain new appliances and energy-related renovations.
The available rebates are somewhat targeted, but you might be eligible for up to $840 toward a new electric stove — a nice saving.
Here’s a summary of appliance and equipment rebates. You might receive up to:
- $840 for an electric stove, cooktop, range or oven. An electric heat pump clothes dryer can also qualify.
- $1,750 for a heat pump water heater.
- $8,000 for a heat pump used for space heating or cooling.
You’ll notice heat pumps come up frequently. A heat pump is a highly efficient system that both heats and cools your home, replacing a more conventional HVAC setup.
Heat pumps typically cost roughly $4,000 to $7,500, so the rebates could yield substantial savings once the program is active.
But don’t expect immediate availability.
States must apply for and receive approval for funding first, and experts warn it could take months before each state implements its own rebate program.
If you’re thinking about applying for a rebate, keep an eye out for announcements from your state government.
Meanwhile, there’s a mix of tax credits geared toward energy improvements that begin next year.
One provision offers up to a 30% tax credit if you buy and install solar panels on your property.
You can also claim tax credits such as $250 for an exterior door, $600 for exterior windows and $600 for central air conditioners, among others.
An important caveat: these tax credits are nonrefundable — they lower your federal tax bill but won’t increase your refund.
2. Subsidized Marketplace Health Coverage
If you obtain health insurance through the Affordable Care Act Marketplace, your premiums will remain more affordable for another three years.
The Inflation Reduction Act extends enhanced marketplace subsidies through 2025, which is expected to help about 13 million people save an average of $800 annually on their health insurance premiums, according to The White House.
Absent these subsidies, marketplace plan premiums would have been about 53% higher in 2022, based on analysis from the nonprofit Kaiser Family Foundation.
These savings will assist individuals already enrolled through healthcare.gov or state exchanges — including the self-employed, those without employer coverage and people who don’t qualify for Medicare or Medicaid — as well as anyone who signs up for marketplace coverage before 2025.
3. Lower Drug Costs for Medicare Participants
The Inflation Reduction Act includes one of the most significant Medicare reforms in decades.
The law allows Medicare to directly negotiate prices for certain high-cost prescription drugs, places a $2,000 annual cap on out-of-pocket drug spending for beneficiaries and limits annual Part D premium hikes to no more than 6% per year from 2024 through 2029.
These changes won’t all take hold immediately.
Two provisions kick in sooner: a $35 cap on out-of-pocket insulin costs beginning next year and a rule preventing drug makers from raising prices faster than inflation.
Collectively, these updates are projected to deliver meaningful savings to more than 62 million Medicare enrollees, particularly seniors living on fixed incomes.
4. Electric Vehicle Tax Credits
The law extends a tax credit of up to $7,500 for qualifying new electric vehicles and introduces a new credit of up to $4,000 for eligible used EVs.
However, the credits come with price caps. New electric sedans must have a price below $55,000, while new electric SUVs, vans and pickup trucks must be under $80,000. The limit for used EVs is $25,000.
There are also income limits. To claim the credit for a new EV, your adjusted gross income must be $150,000 or less. For used EVs, the income cap is $75,000.
For households trying to stretch their budget amid rising costs, these incentives — along with energy rebates and marketplace health subsidies — can provide practical relief. If you want to read more about how inflation affects smaller enterprises and ways to adapt, check out inflation small business.
Daniel Park is a personal finance writer and Certified Educator in Personal Finance.
