What Is the Inflation Reduction Act and What Does It Do?

The Inflation Reduction Act is a federal law signed in August 2022 (Public Law 117-169) that restructured Medicare drug pricing, created a package of clean energy and vehicle tax credits, imposed a 15% minimum tax on large corporations, and directed tens of billions of dollars toward IRS enforcement. Much has changed since. The One Big Beautiful Bill Act, signed on July 4, 2025, terminated most of the individual energy and vehicle credits years ahead of schedule, and Congress clawed back most of the IRS enforcement funding. What remains in force in 2026 is the healthcare side of the law: Medicare drug price negotiation, the Part D out-of-pocket cap (now $2,100), the $35 monthly insulin cap, and the corporate tax provisions.

Lower Medicare Drug Prices Through Negotiation

The law gave the Secretary of Health and Human Services authority to negotiate prices for high-cost brand-name Medicare drugs that face no generic or biosimilar competition.¹ CMS selected ten Part D drugs for the first round, and the negotiated maximum fair prices took effect in 2026.²

If you’re on Medicare, you may be paying less this year for any of these medications:

Eliquis and Xarelto, for blood clot prevention and treatment
Jardiance, Januvia, and Farxiga, for diabetes (Farxiga also covers heart failure and chronic kidney disease)
Entresto, for heart failure
Enbrel, for rheumatoid arthritis and psoriasis
Imbruvica, for blood cancers
Stelara, for psoriasis, psoriatic arthritis, Crohn’s disease, and ulcerative colitis
NovoLog and Fiasp insulin products

The program grows each year. CMS will add up to 15 more Part D drugs for 2027, another 15 (including Part B drugs) for 2028, and up to 20 additional drugs per year after that.¹

Part D Out-of-Pocket Cap and the Insulin Cap

The IRA capped annual out-of-pocket drug spending under Medicare Part D starting in 2025. That cap adjusted with inflation to $2,100 for 2026.³ Before the change, Part D enrollees in the catastrophic phase still paid 5% of drug costs with no ceiling, and some patients with cancer or autoimmune conditions faced bills of $10,000 or more per year. That unlimited exposure is gone.

The law also created the Medicare Prescription Payment Plan, which lets you spread your out-of-pocket costs across the year in monthly installments rather than paying large amounts at the pharmacy counter. Your plan divides what you owe (plus any previous balance) by the months remaining in the calendar year, so your monthly amount can shift as you fill new prescriptions.⁴ The option is most useful early in the year, when deductibles and expensive medications can otherwise hit at once.

Insulin is separately capped at $35 per month’s supply under both Part D (covered insulin products) and Part B (insulin delivered through a pump under the durable medical equipment benefit).⁵ That cap holds regardless of the underlying market price, which makes monthly costs predictable for the roughly 3.3 million Medicare enrollees who use insulin.

ACA Marketplace Subsidies Have Expired

The IRA extended the enhanced Affordable Care Act premium tax credits first created during the pandemic. Those enhanced credits capped a household’s share of income spent on benchmark coverage at 8.5% and made subsidies available to people above 400% of the federal poverty level who had previously been ineligible. About 22.4 million marketplace enrollees received enhanced subsidies in 2025.

The enhanced credits expired on January 1, 2026, and subsidies reverted to their pre-pandemic levels. As of early 2026, extension efforts have stalled. A three-year extension bill passed the House in January 2026, but a Senate version aiming for a two- to three-year extension failed to reach the 60 votes needed to advance. Analysts project average net marketplace premiums will more than double without the enhanced credits, and roughly 4.8 million additional people could become uninsured. If you buy coverage through an ACA marketplace, check your 2026 premium notice because your subsidy amount likely changed.

Energy and Vehicle Tax Credits: Mostly Gone

The IRA created or expanded a suite of individual energy and vehicle tax credits that were originally scheduled to run through the early 2030s. The One Big Beautiful Bill Act terminated most of them in 2025.⁶ If you already claimed a credit before its cutoff, your credit is unaffected.

Credits That Have Already Expired

These credits are no longer available as of the dates shown:⁷

New Clean Vehicle Credit (Section 30D), up to $7,500 for qualifying new EVs, unavailable for any vehicle acquired after September 30, 2025.⁸
Used Clean Vehicle Credit (Section 25E), up to $4,000 for pre-owned EVs priced at $25,000 or less, unavailable for any vehicle acquired after September 30, 2025.⁹
Commercial Clean Vehicle Credit (Section 45W), unavailable for any vehicle acquired after September 30, 2025.
Energy Efficient Home Improvement Credit (Section 25C), which had covered 30% of heat pumps, insulation, windows, and similar upgrades up to $1,200 per year ($2,000 for heat pumps), unavailable for property placed in service after December 31, 2025.¹⁰
Residential Clean Energy Credit (Section 25D), which had provided 30% back on solar, battery storage, wind, and geothermal projects with no dollar cap, unavailable for expenditures made after December 31, 2025.¹¹

Credits Still Available Through Mid-2026

A few IRA incentives survive into mid-2026 before they also expire under the same legislation:⁶

Alternative Fuel Vehicle Refueling Property Credit (Section 30C), for property placed in service through June 30, 2026.
New Energy Efficient Home Credit (Section 45L), for qualified homes acquired through June 30, 2026.
Energy Efficient Commercial Buildings Deduction (Section 179D), for property where construction begins by June 30, 2026.

If You Qualified Before the Cutoff

You can still claim the credit on your 2025 return (or 2026 for mid-year expirations). File Form 8936 for vehicle credits or Form 5695 for residential energy credits. Keep receipts, time-of-sale reports, and installation records because the IRS may request documentation.¹²¹³

State Home Energy Rebates Are Still Funded

Separate from the tax credits, the IRA allocated about $8.6 billion for two rebate programs run by states rather than the IRS. Because these are spending programs, they were not touched by the One Big Beautiful Bill Act’s tax credit terminations. Funding is limited and varies by state.

The Home Electrification and Appliance Rebates (HEAR) program offers point-of-sale rebates on specific electric upgrades for households earning below 150% of area median income:¹⁴

Heat pump for space heating or cooling: up to $8,000
Electric load service center upgrade: up to $4,000
Electric wiring: up to $2,500
Heat pump water heater: up to $1,750
Insulation, air sealing, and ventilation: up to $1,600
Electric stove, cooktop, range, or oven: up to $840
Electric heat pump clothes dryer: up to $840

Total HEAR rebates are capped at $14,000 per household. Households below 80% of area median income can receive up to 100% of costs; those between 80% and 150% of AMI are limited to 50%.

The Home Efficiency Rebates (HOMES) program pays based on whole-home energy savings instead of individual appliances. A single-family household achieving at least 35% modeled savings can receive up to $4,000 (or $8,000 for lower-income households). Smaller improvements of 20% to 35% qualify for up to $2,000 (or $4,000 for lower-income households). Some states have already exhausted their HEAR allocations, while others have not yet launched HOMES. Check your state energy office for current availability.

Corporate Minimum Tax and Stock Buyback Tax

The IRA imposed a 15% Corporate Alternative Minimum Tax on corporations with average annual adjusted financial statement income above $1 billion over a three-year period.¹⁵ By taxing book income reported to shareholders rather than taxable income, the law targets firms that report large profits to investors but pay little federal income tax. The Joint Committee on Taxation estimated roughly 150 companies would be affected.

The law also created a 1% excise tax on stock buybacks by publicly traded domestic corporations, under Section 4501, applied to the fair market value of shares repurchased during the year.¹⁶ Exceptions cover shares contributed to employee retirement plans and buybacks that are part of a corporate reorganization. Both provisions remain in effect.

IRS Funding Has Been Largely Rescinded

The IRA originally directed roughly $80 billion to the IRS over ten years, with the largest share earmarked for enforcement against high-income individuals and large corporations with complex returns.¹⁷ Through fiscal years 2024 and 2025, Congress rescinded over $40 billion from the enforcement account, leaving a fraction of the original balance. Technology modernization and taxpayer services also saw reductions.

One visible consequence for filers: the IRS Direct File program, which let eligible taxpayers prepare and file federal returns for free directly through the IRS, will not be available for the 2026 filing season after the agency told participating states it was shutting the program down. Some IT modernization has proceeded, and early tranches of funding did increase taxpayer assistance staffing, but the original plan for a substantially expanded audit capacity focused on wealthy filers has been curtailed.

1
ASPE – HHS.gov. Inflation Reduction Act Research Series: Medicare Drug Price Negotiation Program
2
Centers for Medicare & Medicaid Services. Medicare Drug Price Negotiation Program: Selected Drugs for Initial Price Applicability Year 2026
3
Medicare. How Much Does Medicare Drug Coverage Cost?
4
Medicare. Before Using This Payment Option
5
Centers for Medicare & Medicaid Services. Frequently Asked Questions About Medicare Insulin Cost-Sharing
6
Internal Revenue Service. One Big Beautiful Bill Provisions
7
Internal Revenue Service. FAQs for Modification of Sections 25C, 25D, 25E, 30C, 30D, 45L, 45W, and 179D Under Public Law 119-21
8
Office of the Law Revision Counsel. 26 USC 30D – Clean Vehicle Credit
9
Office of the Law Revision Counsel. 26 USC 25E – Previously-Owned Clean Vehicles
10
Office of the Law Revision Counsel. 26 USC 25C – Energy Efficient Home Improvement Credit
11
Office of the Law Revision Counsel. 26 USC 25D – Residential Clean Energy Credit
12
Internal Revenue Service. How to Claim a Clean Vehicle Tax Credit
13
Internal Revenue Service. How to Claim a Residential Clean Energy Tax Credit
14
Energy Star. Home Efficiency Rebates and Home Electrification and Appliance Rebates
15
Internal Revenue Service. Corporate Alternative Minimum Tax
16
Office of the Law Revision Counsel. 26 USC 4501 – Repurchase of Corporate Stock
17
Internal Revenue Service. Inflation Reduction Act of 2022