The Inflation Reduction Act and Your Taxes: What to Know for 2025

You may have heard about the Inflation Reduction Act (IRA), sweeping legislation passed during the Biden administration designed to address the high cost of prescription drugs, healthcare availability, climate change, and the need to raise tax revenue.

But did you know that the various clean energy tax credits and other tax incentives in the IRA might benefit you?

Here's an overview of key tax credits and benefits in the IRA.

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We'll also cover some updates on how those provisions could change after this year due to likely changes from the second Trump administration and the current U.S. Congress.

Inflation Reduction Act: Small business and middle-class income taxes

The good news for most is that the IRA was designed not to increase taxes on small businesses or families that make $400,000 or less. However, the actual tax effect over time remains to be seen.

Under the IRA, however, some corporations may pay more tax than they did in the past.

For example, under the legislation, large businesses with more than $1 billion in reported income are supposed to be subject to a 15% minimum corporate tax rate. The IRA also includes an excise tax on corporate stock buybacks.

Those provisions help address the fact that some large companies you may be familiar with, like Nike or Amazon, pay very little in federal taxes.

Update: It’s important to note that the Trump administration and Republican-led Congress in 2025 are actively debating potential changes to corporate and individual tax provisions, including those established by the IRA.

Any new legislation could impact how these taxes are applied in the future. So, it's important to stay informed.

Affordable Care Act premium tax credits

The Inflation Reduction Act also extends the expanded Affordable Care Act (ACA) program through 2025 so eligible individuals and families who purchase their health insurance through the federal Health Insurance Marketplace can continue to benefit from lower health care premiums.

The ACA’s premium tax credit was designed to help people with low and middle incomes pay for health insurance purchased through the healthcare marketplace (i.e., HealthCare.gov). Health insurance can also be purchased through some state exchanges.

• Eligibility for the ACA premium tax credit program was temporarily expanded during the COVID-19 pandemic to allow more individuals and families to claim the refundable tax credit.
• As a result, the ACA premium tax credit is extended for three more years, which means that more people will likely qualify for the premium tax credit, and some will receive a larger credit.
• For more information about how the IRA can impact ACA premiums, see: The Inflation Reduction Act Will Boost Obamacare Tax Credit.

Note: The expanded ACA premium tax credits will expire at the end of 2025 unless Congress extends them.

The Trump administration and GOP-led Congress are considering whether to renew, revise, or let these enhanced credits lapse, which could affect health insurance costs for millions of Americans in 2026 and beyond.

Clean energy tax credits for homeowners

To support clean energy, the IRA provides new tax credits. Other energy-related tax credits are extended — some of which could benefit homeowners.

Solar Project Tax Credit: For example, the law includes a 10-year extension of the homeowner credit for solar projects, like rooftop solar panels. The tax credit that applies to solar panels can be beneficial on its own, of course.

But it also has potential positive implications for people interested in using solar panels to charge their electric vehicles. That’s because if you are eligible for both home and residential solar tax breaks and the federal EV charger tax credit, you could reap the benefits of two significant clean energy tax incentives in the new law.

• The solar project tax credit could also benefit people who purchase energy-efficient water heaters, heat pumps, and HVAC systems.
• Besides solar incentives, affordable housing could also increase because the Inflation Reduction Act creates a $1 billion incentive program for energy-efficient affordable housing.
• For more information about how the IRA can impact homeowner tax credits, see Tax Credits for Energy-Efficient Home Improvements.

Note: Some of these clean energy tax credits and incentives are also subject to expiration or modification after 2025.

With the Trump administration and Republican-led Congress prioritizing the possible elimination of key IRA provisions, these credits' future availability and structure may change.

EV tax credit

The IRA also contains provisions for an electric vehicle tax credit. The existing tax credit for buying a new or used electric vehicle is extended for 10 years — until December 2032.

The federal EV tax credit applies to any “clean vehicle,” which, for example, now includes hydrogen fuel cell cars.

• However, the IRA sets income limits on who can claim the EV tax credit and limits the manufacturers' retail sales price (MSRP) of the cars that qualify for the EV tax credit.
• Those limits effectively exclude higher-priced luxury electric vehicles.
• The IRA also removed the 200,000-car cap for claiming the EV tax credit, to allow manufacturers like Tesla, General Motors, and Toyota to qualify for the tax credit.

Also, there is an EV tax credit change as of 2024. Eligible car buyers can take the EV tax credit as a discount at the time of the car purchase.

You are effectively transferring the credit to a registered dealer who could reduce the price of the vehicle by the EV tax credit amount. That means you don't have to wait until you file your tax return to benefit from the federal clean vehicle tax break.

The IRA also revives the federal EV charger tax credit for electric vehicle charging stations and equipment that had expired several years ago.

For more information about EV-related tax credits, see How the EV Tax Credit Works and The Federal Tax Credit for EV Chargers is Back.

Note: The structure and future of EV tax credits are also under review in 2025, as the Trump administration and Congress debate the scope and funding of clean energy incentives.

Potential changes could affect eligibility, credit amounts, or even the existence of these credits after 2025.

For more information, see Is the EV Tax Credit Going Away Under Trump?

IRS enforcement

The Inflation Reduction Act included $80 billion in additional funding over ten years for the IRS. The funds were supposed to help improve tax compliance, which in turn could increase federal revenue by an estimated $203 billion.

It's important to note that billions of those funds have since been clawed back in budget negotiations, but the IRS had planned to use a significant portion to improve IRS tax enforcement with high earners.

That included increasing staffing levels, modernizing outdated processing systems, and improving IRS operations.

Note: With a new administration in the White House, Congress is currently debating the future of the IRS, its workforce, and its funding.

Some lawmakers want to redirect or reduce the remaining enforcement funds or abolish the IRS, which could significantly change operations and tax priorities in the coming years.

Medicare prescription drugs

In addition to clean energy tax credits and higher taxes for some corporations, the IRA contains provisions that allow Medicare to negotiate lower prices for some prescription drugs.

• A key change is that out-of-pocket costs for covered Medicare prescription drugs will be capped at $2,000 per year, beginning this year, 2025. That cap will be adjusted yearly for inflation.
• As of January 2023, people who take insulin and have Medicare prescription drug coverage have their out-of-pocket cost capped at $35 for a month’s supply. Additionally, under the IRA, Part D adult vaccines for people with Medicare were available at reduced cost beginning in 2023.
• The Centers for Medicare and Medicaid Services has more information on how the IRA impacts the costs of Medicare prescription drugs.

Update: While these Medicare provisions are being implemented, Congress is engaged in ongoing discussions about potential changes to healthcare policy, including prescription drug pricing.

Any new legislation could impact the scope or duration of these benefits in future years

Clean energy tax incentives in the Inflation Reduction Act

As you can see, the Inflation Reduction Act changes some current tax credits that impact eligible homeowners and EV buyers. It also shifts some longtime tax policy — particularly for certain large corporations.

And while all the tax changes in the IRA may not impact your tax bill, a few extended and enhanced tax credits might save you some money on your federal tax return.

The Inflation Reduction Act under Trump: What's next?

However, it’s important to note that many provisions of the 2017 Tax Cuts and Jobs Act (TCJA), including individual tax rates, the standard deduction, and the child tax credit, are set to expire after 2025.

As a result, the Trump administration and Republican-led Congress have prioritized extending or modifying these provisions and are also considering changes to the Inflation Reduction Act’s tax incentives to offset the proposed cuts' $4.6 trillion price tag.

As a result, depending on what Congress does this year, the tax landscape for individuals and businesses could change significantly as of 2026 and beyond, significantly impacting your finances.

Related

• How the EV Tax Credit Works
• The Federal Tax Credit for EV Chargers is Back
• Tax Credits for Energy-Efficient Home Improvements