Impact of Biden’s
Inflation Reduction Act
on Small Businesses
The Inflation Reduction Act of 2022 was signed into law by President Joe Biden on August 16, 2022, making historic moves towards helping everyday Americans fight against inflation, invest in domestic energy production and manufacturing, and reduce carbon emissions by roughly 40% by 2030. Let’s take a look at what specifically will help small businesses.
What is the Inflation Reduction Act About?
Looking closely at the Inflation Reduction Act, it is aimed to make life easier for small business owners. First, there’s the goal of preserving critical support for small business health care costs. This Act would preserve the American Rescue Plan premium tax credit support for the Affordable Care Act (ACA) plans by extending them through 2025. Based on 2021 tax data, the ACA Marketplace is a source of coverage for 2.6 million small business owners and self-employed adults—small business owners and self-employed people make up 25% of Marketplace enrollment. Since the implementation of the ACA, the uninsured rate dropped from a staggering 30% in 2013 to a much-improved 20.5% in 2019.
The Inflation Reduction Act includes a number of provisions that save small business owners on energy costs, including a tax credit that covers up to 30% of switching over to low-cost solar power. This lowers operating costs and helps protect against volatile energy prices that are squeezing small business owners. Small businesses with a building can receive a tax credit up to $5 per square foot to support energy-efficient improvements that deliver lower utility bills. Small businesses that use large vehicles (like trucks or vans) will reap the benefits of tax credits covering 30% of purchase costs for clean commercial vehicles, such as electric and fuel cell models.
The focus on mitigating energy costs not only helps support small business owners, it also helps combat the climate crisis by focusing on energy-efficient and environmentally friendly usage.
How does the Inflation Reduction Act impact my small business?
So, how do this impact you?
The Inflation Reduction Act aims to double the Research and Development (R&D) tax credit for small businesses. Pre-revenue startups create jobs and support economic growth through research, discovery, and innovation. This bill aims to level the playing field and will help spur high-impact R&D by increasing refundable research and development tax credit for small businesses from $250,000 to $500,000. Starting in 2023, small businesses may use the credit to further reduce payroll taxes and several other business expenses by up to $500,000 annually, so they can do what they do best: innovate to solve global problems and create jobs nationwide that propel economic growth.
They also boost American manufacturing and competitiveness by opening opportunities for small businesses, spurring on U.S. supply chains which include green technologies like solar, wind, carbon capture, and clean hydrogen. This legislation includes specific tax incentives aimed towards manufacturing materials sourced from the U.S., like batteries, solar, and wind turbines.
It all boils down to greater economic growth for small businesses on a nationwide scale, thus allowing small businesses to get greater tax credits and feed that money back into their business ventures, supporting employees and employers alike.
If you’re left wondering what to do or how to utilize the Inflation Reduction Act, you can look at the White House website for specifics on the Act, including this page that sources more information about the aid it provides to small business owners. No family or small business making less than $400,000 per year will see taxes go up by a single cent—that is what this Act helps to ensure for average Americans.
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