What the Inflation Reduction Act and Student Loan Forgiveness May Mean For You
Inflation Reduction Act
The Inflation Reduction Act was signed into law on Tuesday, August 16. While the $430 billion package includes many provisions, this article highlights three key areas where you may benefit the most.
- Tax credits for energy-related home improvements - Beginning in 2023, the bill includes a 30% tax credit for installing energy-efficient windows, heat pumps, or newer appliances. Just be aware that the credit for each upgrade may have its own limit, and the aggregate credit limit is $1,200 per year (previously the limit was a $500 maximum lifetime credit). There’s another tax credit for installing solar panels, and up to $14,000 worth of rebates for upgrading to new, energy-efficient appliances. Some credits or rebates are limited based on your income relative to the median income in your area.
- Expanded EV tax credits - If you are considering purchasing an electric vehicle, you may be in luck! New tax credits are immediately available, with up to $4,000 offered for used EVs and up to $7,500 for new EVs (see details here). There’s also a tax credit for installing an electric charger in your home (just read the fine print to ensure you qualify).
- Prescription drug caps - Some changes don’t take effect right away. For example, insulin payments will be limited to $35 per month for Medicare Part D beneficiaries starting next year. In 2024, overall out-of-pocket drug costs will be limited to $4,000 annually, dropping to $2,000 in 2025.
Student Loan Forgiveness
The White House recently announced its plan to forgive up to $10,000 to student loan borrowers as part of a larger debt forgiveness program. There are still quite a few questions to be answered, but here are some key points to know.
Pell vs. non-Pell: Loan forgiveness of up to $10,000 is available to non-Pell Grant recipients and up to $20,000 for Pell Grant recipients. Only Federal student loans are able to be forgiven. Loans held through a private lender are ineligible for this program.
No Surplus: The amount of student loan forgiveness available depends on how much you still owe. If you only owe $8,000 in federal loans but qualify for $20,000 of relief, you will not be receiving the surplus of $12,000.
Income Cap: Borrowers with pandemic-era salaries (that is, tax years 2020 or 2021) under $125,000 (for individuals) or under $250,000 (for married couples or heads of households) are eligible for relief. Based on current guidance, as long as your income was below that threshold for either 2020 or 2021, you would qualify for forgiveness, and “income” is thought to be defined as Adjusted Gross Income. This could change as further guidance is released, however.
Loan Dates: Federal loans taken out after June 30, 2022, do not qualify for loan forgiveness.
Application Process: Depending on your lender, you may already be approved and have your account credited by the end of the year. However, an application is expected to be released in the coming weeks before the student loan payment pause ends on December 31, 2022.
Refunds of Frozen Payments: If you made any payments on student loans which were eligible for the payment pause beginning March 13, 2020, you can request a refund for those payments thereby potentially increasing the amount that could be forgiven.
Be Aware: As more details are released, scams may also pop up. Remember to practice caution and good business sense if someone contacts you about your student loans.
The student loan forgiveness and this new legislation provides some potentially significant benefits, but it also presents new complexities. SFP is here to help answer your questions about how the provisions of the Inflation Reduction Act could impact you and talk through the potential student loan forgiveness for you and/or your family.
This content is developed from sources believed to be providing accurate information, and provided by Strategic Financial Planning, Inc. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered legal or tax advice.