It’s no secret that inflation is impacting the wallets across the country. The latest Consumer Price Index report indicates that consumer costs have risen 8.5% in the last 12 months.
In an effort to address these rising costs, President Biden signed the Inflation Reduction Act into law earlier this week.
Let’s take a closer look at how this act could save you money.
What’s impacted by the Inflation Reduction Act
According to the White House’s statement on August 15, “The Inflation Reduction Act will lower costs for families, combat the climate crisis, reduce the deficit, and finally ask the largest corporations to pay their fair share.”
It’s clear the massive bill has impacts across health care, clean energy, and the tax code.
Although the name of the act is the Inflation Reduction Act, there’s a debate on whether or not the Act will make good on its namesake. A lower inflation rate may or may not be part of this legislation's consequences. But consumers will still find specific savings opportunities embedded in the law.
Where you will see savings
Regardless of the long-term impact on overall inflation, some Americans will see savings in the short term. That’s especially true when paying for health care costs or making big-ticket purchases with a green energy label.
Households that qualify for healthcare coverage under the Affordable Care Act will continue to benefit from subsidies for insurance premiums. Essentially, this portion of the bill extends a pandemic policy that was set to expire.
With this extension, the government is committing to the subsidy until 2025. According to the White House, this will save an estimated 13 million Americans an average of $800 per year on health insurance premiums.
In other healthcare-related savings, the act makes changes to Medicare, which covers millions of older Americans. One highlighted change is a new cap of $2,000 on out-of-pocket drug costs for Medicare Part D recipients, starting in 2025.
Also, Medicare beneficiaries who rely on insulin will see a new out-of-pocket price cap of $35 per month starting next year. According to the White House, 3.3 million Americans will benefit from this change.
Another big health care cost update is the fact that Medicare will have the right to negotiate prescription drug prices with the pharmaceutical companies. With the ability to negotiate, there is hope for significant price changes that could put more money in your pocket down the line.
The Inflation Reduction Act will have a major impact on the energy industry. You can tap into big incentives if you are willing to make energy-efficient home upgrades.
The bill includes $14,000 in direct consumer rebates for families purchasing energy-efficient appliances, like heat pumps and electric panels. According to the White House, these upgrades could save you $350 per year. That's a great option for families who need to upgrade their appliances.
Additionally, families installing solar panels on their roofs can tap into a 30% tax credit. Estimates from the White House expect this measure to help families save at least $300 per year.
If you are in the market for a vehicle in 2023, considering an electric option could lead to significant savings. When you purchase a new electric vehicle, you can take advantage of up to $7,500 in tax credits. Even used vehicle purchasers will enjoy $4,000 in tax credits.
But it’s important to keep in mind income limitations. For the new electric vehicle tax credits, single filers must earn less than $150,000 to qualify. The cap is higher at $300,000 for married couples filing together.
For the used electric vehicle tax credits, single filers must earn less than $75,000 to qualify. The cap is higher at $150,000 for married couples filing together.
Plus, there are some other rules. For example, you’ll only get the tax credits on new electric trucks, vans, and SUVs if the MSRP is less than $80,000. For new electric cars, the price cap is $55,000.
How much will you save?
The suite of savings opportunities across the energy industry might save you money. But the amount you save will vary based on many factors.
For example, only homeowners can really tap into some of the savings for energy-efficient home improvements. And if you don’t need an electric vehicle anytime soon, you’ll miss out on those tax credits. The good news is that you can use these incentives any time in the next 10 years.
Rewiring America’s handy calculator can help you determine how much you stand to save from the energy measures in the Inflation Reduction Act. It’s easy to run the numbers for your unique situation. But we’ll look at three different households and their potential for savings.
Let’s consider a married couple living in Los Angeles, California, and earning a combined household income of $80,000. These homeowners with one dependent child plan to make green energy upgrades and install energy-efficient measures.
According to Rewiring America’s calculator, they stand to tap into $14,000 in upfront discounts and $6,081 in tax credits. They can take advantage of the total estimated incentives of $20,081 over the next 10 years.
Each year, the family may save around $1,340 in bill payments.
In the middle of the country, let’s consider a single renter living in Kansas City earning $50,000 per year.
As a renter, they cannot take advantage of many of the energy efficiency upgrade tax credits. But they can still tap into upfront discounts on an electric stove, heat pump clothes dryer, or heat pump air conditioner. And, of course, they can enjoy the electric vehicle tax credits.
All told, this Kansas City household can access up to $9,680 in upfront discounts ad up to $3,768 in tax credits. With that, they could save $1,480 on bills each year.
Finally, let’s look at married homeowners in Florida earning a combined household income of $90,000. As with the California couple, they can access up to $14,000 in upfront discounts for energy-efficient purchases. And they can also get up to $5,336 in available tax credits.
At the end of the day, this couple could save $19,336 over the next ten years or around $1,520 per year in bill savings.
For more tips, be sure to check out our guide on how to save money on gas, 12 Amazon buying tricks every Prime member should know, and how to recession-proof your finances.