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While nothing is in legislative form yet, the Republican Study Committee’s proposed changes to Medicare may serve as a starting point.
Among the proposals: raising the age of eligibility for Medicare to 67 from 65 to align with Social Security’s full retirement age.
Congressional lawmakers will need to take action before 2028 to prevent Medicare from only being able to pay 90% of benefits under Part A (hospital coverage).

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As congressional lawmakers in the House slog through the early stages of negotiating over the debt ceiling — the amount of money the U.S. government can borrow — there’s been concern that those discussions could include spending cuts to Medicare.
However, House Speaker Kevin McCarthy, R-Calif., has now made assurances that Medicare is off-limits during these negotiations (as is Social Security, for that matter), according to published reports.

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Yet at some point, experts say, Congress will need to deal with a looming problem for Medicare: One of its funding sources is projected to become insolvent in 2028.
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“Medicare is a sizable share of the federal budget,” said Gretchen Jacobson, vice president of the Medicare program at the Commonwealth Fund. “Balancing the fiscal [soundness] of the federal government with affordability for beneficiaries has always been an ongoing challenge.”

How the GOP is approaching Medicare’s fiscal woes

Medicare has 64.5 million beneficiaries, the majority of whom are at least age 65 — the age of eligibility — or younger with permanent disabilities. It consists of Part A (hospital insurance) and Part B (outpatient care coverage).
There also is Part D (prescription drug coverage) and Part C (Medicare Advantage Plans), both of which are offered by private insurers. Advantage Plans deliver Parts A and B, and usually Part D. 

The Republican Study Committee — the GOP’s largest caucus, with about 170 members out of 222 House legislators — has addressed the looming fiscal problem by outlining hoped-for changes to Medicare in its proposed budget, which it says would ensure the system’s long-term solvency.

Among the group’s proposals: raising the age of eligibility to 67 from 65, which would align with the full retirement age for Social Security. Additionally, Parts A, B and D would be consolidated into a single plan with one premium, and direct competition would be encouraged from Advantage Plans with that federal plan. There also would be premium subsidies available, depending on a person’s income.
“The [budget] is going to be our guide for what conservatives would like to see in an ideal world,” said a committee spokesperson.

‘It’s still early in the policy process,’ expert says

Nothing is in legislative form yet, and it’s uncertain exactly which proposals would be included if bills are introduced — or what their chances of getting through a divided Congress would be.
“This is still early in the policy process so it is hard to predict which proposals will remain on the table, or how they might evolve,” said Tricia Neuman, executive director for the Kaiser Family Foundation’s program on Medicare policy. “Some of the proposals would involve a large-scale restructuring of the current Medicare program.”

The stakes in a debate like this are high, given the importance of Medicare.

Tricia Neuman
executive director for the Kaiser Family Foundation’s program on Medicare policy

Right now, Neuman said, the savings proposals are being described at a fairly high level.
“The policy debate starts to get real when the specifics are laid out,” she said. “The stakes in a debate like this are high, given the importance of Medicare [for] seniors and younger people with disabilities.”

Here’s what insolvency in 2028 would mean

In simple terms, it’s the Part A trust fund that is facing a shortfall beginning in 2028, according to the latest Medicare trustees report. Unless Congress intervenes before then, the fund would only be able to pay roughly 90% of claims under Part A beginning that year.
That trust fund gets most of its revenue from dedicated taxes paid by employees and employers. Generally, workers pay 1.45% via payroll tax withholdings (although an additional 0.9% is imposed on incomes above $200,000 for single taxpayers or $250,000 for married couples). Employers also contribute 1.45% on behalf of each worker. Self-employed individuals essentially pay both the employer and employee share.

Meanwhile, Part B gets its funding from monthly premiums paid by Medicare beneficiaries, as well as from the federal government’s general revenue. The same goes for Part D. And each year, premiums are adjusted to reflect anticipated spending and ensure there’s no shortfall.
Despite the threat of insolvency, reducing Medicare spending isn’t realistic, said Robert Moffit, a senior fellow at the Heritage Foundation, a conservative think tank.
Enrollment in Medicare continues growing as the population ages, as does the cost of providing medical care, he noted.
“I don’t think anyone thinks we’re going to spend less on Medicare in the future than we are today,” Moffit said. “We’re going to spend more, but we can spend those dollars smartly.”

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The U.S. is not in a recession, even as many economists and CEOs are bracing for a possible downturn this year.
Yet many Americans think a downturn is already here. The reason: Record high inflation is already causing personal.

A woman shops for chicken at a supermarket in Santa Monica, California, on Sept. 13, 2022.
Apu Gomes | AFP | Getty Images

For those who fear a recession may be coming, the only question is when.
Many economists and CEOs, in fact, expect a recession may be on the horizon this year

A recession is traditionally defined as two consecutive quarters of declining economic growth. That is measured by a drop in gross domestic product, or GDP, a measure of the country’s output in the value of goods and services.
The U.S. economy finished 2022 with positive GDP, new government data shows. From October to December, GDP climbed at a 2.9% annualized pace.
But economic risks still loom. As the Federal Reserve raises interest rates to curb inflation, it may also be putting the brakes on growth.
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Experts aren’t the only ones worried about a downturn.

Almost half of U.S. adults — 46% — think the nation is already in a recession, a recent Morning Consult survey found. Meanwhile, 25% expect such a downturn within the next year.
“We’re not officially in a recession,” said Amanda Snyder, finance reporter at Morning Consult.
“But if people feel that their money is not going as far as it was or their income is shrinking, then they personally are experiencing a financial downturn,” she added.
The survey found 31% of more than 2,200 respondents have started taking steps to prepare for a recession.

Meanwhile, half of U.S. adults — 50% — have not started preparing for a downturn, though they wish they could, the mid-January survey found.
The remaining 19% said they have not prepared because they do not want or need to.
Those who most likely have taken steps to safeguard their finances were those with incomes over $100,000, at 41%; followed by those earning $50,000 to $100,000, at 39%. Those earning less than $50,000 were least likely to have started to prepare, at 24%.
Experts say there are several ways to strive to get your finances in order now.

1. Reduce your spending

Admittedly, record high prices at the grocery store can make it difficult to pare your food bills.
But it is possible to look for ways to cut back to make room for other financial goals.
Certified financial planner Ted Jenkin, CEO and founder of oXYGen Financial and a member of CNBC’s Financial Advisor Council, recommends a 21-day budget cleanse find ways to cut back on spending.
Over 21 days, shop every single bill in your household to see if you can get a better deal.

2. Boost your emergency savings

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Even having just a little more cash set aside can help ensure an unforeseen event like a car repair or unexpected bill does not sink your budget.
Yet surveys show many Americans would be hard pressed to cover a $400 expense in cash.
Experts say the key is to automate your savings so you do not even see the money in your paycheck.
“Even if we do get through this period relatively unscathed, that’s all the more reason to be saving,” said Mark Hamrick, senior economic analyst at Bankrate.com.
“I have yet to meet anybody who saved too much money,” he added.

3. Reduce your debt balances

While higher interest rates are pushing up what you pay on debts, you can control that by paying down your balances, Matt Schulz, chief credit analyst at LendingTree, previously told CNBC.com.
“For inflation to grow this quickly is something that is really rattling to people,” Schulz said.

But certain moves may help you to control your personal interest rate, he said.
If you have outstanding credit card balances you’re carrying from month to month, try to lower the costs you’re paying on that debt, either through a 0% balance transfer offer or a personal loan.
Alternatively, you may try simply asking your current credit card company for a lower interest rate.

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High inflation and economic uncertainty are cramping Americans’ ability to save for emergencies.
“It’s a … more dangerous scenario now than it was during the pandemic,” personal finance expert Suze Orman tells CNBC.com.
Here’s why having an emergency savings set aside is crucial to your financial health.

Suze Orman speaks during AOL’s BUILD Speaker Series at AOL Studios In New York.
Jenny Anderson | WireImage | Getty Images

An unexpected bill is never convenient.
But there are even more reasons now that an unforeseen event — such as a car repair or medical expense — could put Americans on unstable financial footing.

Blame record high inflation, which has soared to the highest levels in 40 years and pushed up prices for everything, including grocery store staples like butter, lettuce and dairy products.
Heading into 2023, recession risks also loom. The question is whether a downturn would be mild or prolonged, while leading tech employers like Amazon and Google have already started slashing jobs.
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Meanwhile, the federal government has reached the debt ceiling. It’s now up to lawmakers to find a solution so the U.S. government can continue to pay its bills.
“We’re having a financial pandemic now, so to speak,” personal finance expert Suze Orman told CNBC.com.

“It’s a … more dangerous scenario now than it was during the pandemic,” Orman said of the current financial risks Americans face.
Many Americans were able to set aside more money than usual during the Covid-19 pandemic, as government aid meant additional unemployment benefits for jobless Americans for longer, while millions of individuals and families received stimulus checks.

Those federal funds are now dwindling, Orman said, as bills — including rents that have, in some cases, tripled and interest rates on mortgages that have climbed higher than they were before the pandemic — start to come due.
The environment may be the wake-up call many Americans need, she said.
“You have to have an emergency savings account, whether you’re in recession or not in a recession,” Orman said.

Americans living paycheck to paycheck

There’s never been a better time to have emergency cash set aside.
Yet putting away a meaningful sum of money continues to be a challenge for many Americans.
A new survey finds 74% of Americans are now living paycheck to paycheck, according to SecureSave, a financial technology company that aims to help workers put aside emergency savings through their employers.
As inflation has soared, more than half of respondents — 54% — have decreased their savings in the past year, SecureSave’s November online survey of more than 1,000 U.S. adults found.
About 67% of workers cannot afford to pay for an emergency $400 expense.

Among the things that Americans regret most about their personal finances is the failure to save for emergencies.

Mark Hamrick
senior economic analyst at Bankrate.com

Orman co-founded SecureSave during the pandemic after having told people for 40 years they need to have a savings account, she said.
“Our goal was very simple: Let’s see if we can change the savings rate in America for those who have never saved a penny before,” Orman said.
Many people often fall short of that goal. A new survey from Bankrate.com finds that most adults — 57% — are unable to afford an emergency $1,000 expense.
“People just can’t do this on their own,” Orman said. “The key is not to see it in your paycheck.”
Through SecureSave, workers can have savings — such as $25 — automatically taken from their paycheck, and may then also receive a $3 or $5 match from their employers.
At the end of a year, people are often surprised by the sums they save, whether it be $600 or $1,000, Orman said.

“They love it,” she noted. “And a lot of times they will raise their paycheck contribution.
“Once you start seeing how easy it is to save, the more you like to save,” Orman said.
By building up the cash you have on hand, you may be able to avoid turning to credit cards as interest rates rise.
To that point, 25% of consumers surveyed by Bankrate.com said they would charge an unexpected expense of $1,000 or more and pay it off over time.
That strategy would be even more expensive now, with new credit card offers for even the best qualified individuals at interest rates of almost 20%, noted Mark Hamrick, senior economic analyst at Bankrate.com.

How savings can help other financial goals

Guido Mieth | DigitalVision | Getty Images

Setting up emergency savings with an employer is just the first hurdle towards financial wellness, according to Orman.
The next goal is to save eight to 12 months’ expenses in a separate savings account, Orman said.
Even workers who are strapped for cash should be contributing enough to their retirement accounts up to an employer match, if there is one.
“You cannot pass up free money,” Orman said.
As workers reduce their financial stress, that may also help employers. Almost 30% of workers say they spend one to two hours a day worrying about money, according to SecureSave.
It can also help to prevent regrets later on, according to Bankrate.com’s Hamrick.
“We’ve historically found that among the things that Americans regret most about their personal finances is the failure to save for emergencies,” Hamrick said. “The other is the failure to save for retirement.”

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With a possible recession looming, going back to school is often considered a good way to boost your career prospects and earnings potential.
But inflation and higher interest rates are complicating the usual return on the investment equation.

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An economic downturn usually sparks a renewed interest in picking up new skills at school.
Historically, enrollment in graduate school picks up amid recession as workers take the time to “skill up” or pivot to another industry with better career prospects or pay.

“When the economy goes down, the interest in graduate schools goes up,” said Eric Greenberg, president of Greenberg Educational Group, a New York City-based consulting firm. “The education umbrella is kind of a hedge.”
But this current economic cycle is unlike any other.
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A wave of layoff announcements has raised concerns that the job market is finally cooling as recession fears take hold. Yet government data shows the U.S. labor market is still strong, with a record low unemployment rate of 3.5%.
Still, a recession may be looming, some experts say, which raises the question of whether going back to school makes more sense than trying to weather a potential period of unemployment.

But there are many factors, including cost and a larger debt burden, to consider that could erode the financial return on investment for a graduate education, Greenberg said. “There are subtle nuances in play.”
Here are some of those key considerations:
This is not your average economic cycle
History is often the best guide, but in this case the usual patterns may not apply. 
In 2020, nationwide enrollment in graduate school initially sank but then quickly rebounded the following year, only to slump again in the fall of 2022. That 1% slide reversed the previous year’s 2.7% gain, according to a report by the National Student Clearinghouse Research Center based on data from colleges. 
In 2023, enrollment rates could likely pick up once again, in part because this time, a recession isn’t likely to be as short-lived as it was during the pandemic, explained Doug Shapiro, executive director of the National Student Clearinghouse Research Center.
There’s usually a lag time of up to a year after the economy slows before workers return to school for retraining, he said.
“Without that expectation of a quick rebound, that could lead to the increased enrollment response that we’re used to seeing,” Shapiro said.
There’s better access to advanced degrees

Students walk past Stanford University’s Graduate School of Business in Stanford, California.
Susan Ragan | Bloomberg | Getty Images

With more programs available remotely, getting an advanced degree is also more manageable than it was before the pandemic.
Now tech workers, for example, who have been laid off can boost their resumes with additional graduate qualifications and certificates that they find online, Shapiro said.
To further expand access, some schools, including Northwestern’s Kellogg School of Management, MIT’s Sloan School of Management, the Tuck School of Business at Dartmouth, Duke’s Fuqua School of Business and UC Berkeley’s Haas School of Business, have waived testing requirements, fees or extended application deadlines for recently laid-off employees.
“There’s an influx of exceptionally talented individuals in the labor market right now who may have been considering business school someday down the road, and the road just took an unexpected sharp turn on them,” Lawrence Mur’ray, Dartmouth’s executive director of admissions and financial aid, said in a statement.
The potential return on investment

Going back to school typically pays. Workers with master’s, professional or doctoral degrees have the highest earnings overall and experience lower levels of unemployment, according to the U.S. Bureau of Labor Statistics.
But in addition to the economic payoff, there is also a higher cost. In less than two decades, the median debt among borrowers who completed master’s degrees has nearly doubled as the cost of a graduate degree, particularly in the form of student debt, spiked, according to the Urban Institute’s Center on Education Data and Policy.
“The financing aspect profoundly influences the decision-making,” said Allen Koh, CEO of Cardinal Education, a California-based tutoring, test-prep and college-admissions firm.

The interest rate on federal student loans taken out for the 2022-23 academic year rose to 4.99%, up from 3.73% last year and 2.75% in 2020-21. For graduate students, the rate jumped to 6.54%, from 5.28% last year and any loans disbursed after July 1 will likely be even higher.
At the same time, inflation has also caused the cost of living to soar, making rent and daily expenses even less affordable on a student’s budget.
To that end, some master’s programs have particularly high debt-to-earnings ratios, such as social work, counseling, music and fine arts, the institute also found.
The growing availability of tuition benefits  
A growing number of companies may be willing to pick up a portion of the tab to ease the burden of affording education.
Coming out of the pandemic, education benefits played a big part in the competition for workers, and as a result more companies are now offering opportunities to develop new skills, according to the Society for Human Resource Management’s recent employee benefits survey. 
Almost half, or 48%, of employers said they offer undergraduate- or graduate-tuition assistance as a benefit, according to the survey.

Of course, employers paying for their workers to get a degree is not new. For decades, businesses have picked up the tab for white-collar workers’ graduate studies and MBAs.
However, many companies are now extending this benefit to hourly and part-time employees as well as heavily promoting it more so than they have in the past.
Even if there is a strong desire to go back to school, less than half of employees said they have been able to pursue educational goals in the last several years, mostly due to the time commitment and financial obstacles, according to research by Bright Horizons.
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The Biden administration rolled out a blueprint for a renters bill of rights, a major win for tenants, advocates say.
Some of the upcoming changes could include curbing ‘egregious’ rent hikes in certain properties, and more funding to get low-income tenants facing eviction access to legal representation.

Housing rights activists and tenants protest against evictions and the poor condition of their apartments outside the offices the landlord Broadway Capital in Chelsea, Massachusetts on April 25, 2022.
Brian Snyder | Reuters

The Biden administration announced on Wednesday new actions to protect renters across the U.S., including trying to curb practices that prevent people from accessing housing and curtailing exorbitant rent increases in certain properties with government-backed mortgages.
A “Blueprint for a Renters Bill of Rights” was included in the announcement. It lays out a collection of principles for the federal government and other entities to take action on, including “access to safe, quality, accessible and affordable housing” and “clear and fair leases.”

“Having the federal government and the White House talk about the need for and endorse a renters’ bill of rights is really significant,” said Diane Yentel, president and CEO of the National Low Income Housing Coalition.
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Over 44 million households, or roughly 35% the U.S. population, live in rental housing, according to the White House.
While the coronavirus pandemic led to a wave of new renter protections and aid measures, including a historic pot of rental assistance for those who’d fallen behind, most of that help has dried up by now.
Advocates have long called on the government to respond to an affordability crisis facing renters. Nearly half of renter households in the U.S. direct more than 30% of their income to rent and utilities each month, and 900,000 evictions occurred annually prior to the public health crisis.

Possibly curbing ‘egregious rent increases’

As part of Wednesday’s announcement, the Federal Housing Finance Agency and federal mortgage giants Fannie Mae and Freddie Mac say they will look into possibly establishing tenant protections that limit “egregious rent increases” at properties backed by certain federal mortgages.
More than 28% of the national stock of rental units are federally financed, according to a calculation by the Urban Institute in 2020.
Rent protections on such properties “would be the most significant action the federal government could take,” Yentel said.
As part of the White House actions, the Federal Trade Commission said it will look into ways to expand its authority to take action against practices that “unfairly prevent consumers from obtaining and retaining housing.”

The persistence of eviction information on certain background reports, as well as high application fees and security deposits, are some of these practices, Yentel said.
The U.S. Department of Housing and Urban Development also said it will move toward requiring certain rental property owners to provide at least 30 days notice if they plan to terminate the lease of a tenant due to nonpayment of rent. The agency will award $20 million for the Eviction Protection Grant Program, which will fund nonprofits and government agencies to provide legal assistance to low-income tenants at risk of eviction.
Bob Pinnegar, president and CEO of trade group the National Apartment Association, said the industry opposed expanded federal involvement in the landlord-tenant relationship.
“Complex housing policy is a state and local issue and the best solutions utilize carrots over sticks,” Pinnegar said.

‘Aggressive administrative action is so important’

Although the steps announced by the Biden administration are historic, they won’t resolve the U.S. housing crisis, Yentel said.
What’s needed to address the deep issues, she said, is building more affordable housing, creating permanent emergency and universal rental assistance, and establishing robust tenant protections.
However, Yentel added, since it’s “hard to see where the opportunities for those investments will come from this Congress, aggressive administrative action is so important.”

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Millennials — who are roughly ages 27 to 42 — are in their prime homebuying years.
While the combination of high home prices and rising interest rates has caused affordability issues for many buyers, the situation is gradually improving.
The median price for an existing house was $366,900 in December, just 2.3% higher than a year earlier and a drop from the $416,000 recorded last June.

Lifestylevisuals | E+ | Getty Images

It may come as no surprise that among millennials who have intended to buy a house this year, 92% said in a recent survey that inflation has impacted their goal.
Yet most of them aren’t letting it serve as a roadblock, according to the survey from Real Estate Witch, an education platform owned by real estate data firm Clever.

While 28% of those millennials are delaying their buying plans, the remainder say they’re responding by saving more money for the purchase (59%), spending more than expected (36%), buying a fixer-upper (26%) and buying a smaller home (25%). 
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Millennials — who are roughly ages 27 to 42 — are in their prime homebuying years. The typical first-time buyer was age 36 in 2022, up from age 33 in 2021, according to the National Association of Realtors. 
Last year, first-time buyers made up 26% of home purchases, compared with 34% in 2021. The combination of year-over-year double-digit price jumps for much of 2022 and rising mortgage rates created an affordability problem for many buyers.

Home prices continue heading down from their highs

However, the situation is gradually improving as home prices continue sliding. The median price for an existing house was $366,900 in December, just 2.3% higher than a year earlier and down from $370,700 in November, according to the Realtors association. Last June, the median price was $416,000 — 13.4% higher than in June 2021.

Additionally, interest rates on mortgages have eased. The average for a 30-year fixed-rate loan is 6.21% as of Jan. 24, according to Mortgage News Daily. That compares with 7.32% in late October. As buyers know, the higher the rate, the more their monthly payment is.

5% or 6% may be the ‘new normal’ for mortgage rates

While it’s impossible to predict where rates will be as the year progresses, experts say buyers shouldn’t wait around for mortgage rates to drop to where they were in 2020 and 2021 — below 3% or not much over it — because it’s unlikely to be seen again anytime soon.
Rates were that low due to emergency actions taken by the Federal Reserve to prop up the economy in the wake of the Covid pandemic hitting the U.S. in 2020.

“Those were unusual circumstances,” said Lawrence Yun, chief economist for the National Association of Realtors.
“Buyers should have the mindset that the new normal is a rate of 5% or 6%,” Yun said. 

Houses are still selling quickly

One headwind that buyers may face is limited choices.
As of last month, there was a 2.9-month supply of homes — meaning at the current sales pace, that’s how long it would take to sell all listed houses if no more came on the market. That’s down from 3.3 months in November but up from 1.7 months in December 2021. A balanced market involves a supply of four to five months, according to Redfin. 
“There’s not that much inventory in the marketplace,” Yun said.
“Even with the housing slowdown, days on the market are still less than a month,” he said. “That implies that people in the market to buy are finding a listing they want and snatching it up quickly.”

Homes that sit on the market longer may be a buying opportunity

If you’re hoping to find a seller who’s more likely to come down on price, one strategy is to look for homes that have been on the market longer.
“There’s usually a lot of competition for new listings,” he said. “If you find a home that’s been on the market for at least a month or two, it’s a great opportunity … sometimes sellers will take 10% to 15% off the list price.”

Additionally, be aware that while sellers had been less likely to go under contract with a contingency — i.e., making the final sale contingent upon, say, a home inspection — that dynamic has largely changed.
“Waiving the appraisal and waiving of inspections really walked hand in hand with low interest rates,” said Stephen Rinaldi, founder and president of Rinaldi Group, a mortgage broker based near Philadelphia.

Except for in premium areas, in most cases sellers are back to allowing contingencies.

Stephen Rinaldi
founder and president of Rinaldi Group

“Except for in premium areas, in most cases sellers are back to allowing contingencies,” Rinaldi said.
 Also, if you’re looking at homes close to a city, it may be worth expanding your search radius, Yun said.
“There are always more affordable houses further out,” he said. “And those homes tend to stay on the market for a longer period.”

An adjustable-rate mortgage may be an option

It may also be worth considering an adjustable-rate mortgage if you’re trying to bring the cost down, Yun said.
With an ARM, the appeal is its lower initial rate compared with a traditional fixed-rate mortgage. That rate is fixed for a set amount of time — say, seven years — and then it adjusts up, down or remains the same, depending on where interest rates are at the time.
“Usually the first home isn’t owned for a long period, usually it’s five or seven or 10 years,” Yun said. “So with that in mind, an ARM might make more sense because it offers a lower rate and by the time it’s set to adjust, it’s time to sell the house.”

While there’s a limit to how much the rate can change, experts recommend making sure you’d be able to afford the maximum rate if faced with it down the road. 
You may be able to find an ARM whose introductory rate is at least a percentage point below fixed rates, Rinaldi said.
“I think it’s worth evaluating, depending on the person’s situation,” he said.

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Smart Tax Planning

President Joe Biden signed the Inflation Reduction Act in August.
The historic climate law extended and amended a $7,500 tax credit for plug-in electric and fuel cell vehicles.
The IRS is expected to issue guidance for the clean vehicle credit in March. The rules, which carry requirements for car batteries, may temporarily limit which cars qualify for the full credit value.

Maskot | Maskot | Getty Images

Getting a $7,500 tax break for the purchase of a new electric vehicle will likely get harder in a few months — meaning prospective buyers who want the financial incentive may wish to speed up their timeline.  
The Inflation Reduction Act, a historic climate law President Biden signed in August, tweaked rules for an existing tax credit associated with the purchase of “clean” vehicles.

The law, which extended the tax break through 2031, changed some requirements to get the full $7,500 value of the “clean vehicle credit.”
Some tax and auto experts think the tweaks — largely intended to bring more manufacturing and supply chains within U.S. borders and those of allies — will temporarily make it more difficult to qualify for all or part of the credit.

Some rules are on hold until the IRS issues guidance

Some of the tax credit rules took effect on Jan. 1. (More on those, below.) But others pertaining to battery minerals and components — arguably the more challenging to meet — don’t take effect until the IRS issues guidance. The agency expects to do that in March 2023.
At that time, many clean vehicles that currently qualify for the tax break may not anymore — at least, until manufacturers are able to satisfy the new rules.

More from Smart Tax Planning:

Here’s a look at more tax-planning news.

Consumers who are in the market for a new electric car, truck or SUV likely have a limited time within which they can more easily claim the tax break, experts said.

“There’s almost like a three-month grace period,” Lesley Jantarasami, managing director of the energy program at the Bipartisan Policy Center, said.
Manufacturers have identified 27 all-electric and 12 plug-in hybrid car and truck models that qualify for the tax break based on existing rules, according to IRS data as of Jan. 17. (Buyers must also meet criteria like income requirements.)
Tesla cut prices on some car models this month, helping them qualify for a tax break. There will likely be additions to the vehicle list in coming days and weeks, the IRS said.
After IRS guidance comes through, Jantarasami said, “I don’t think there’s any doubt the list of eligible car models will shrink in the short term.”
If that happens, though, consumers can instead get a separate tax break for buying a used electric car instead of a new one, or perhaps by leasing a car, experts said.

How the $7,500 clean vehicle tax credit works

Westend61 | Westend61 | Getty Images

The clean vehicle credit is a “nonrefundable” tax credit. That essentially means buyers only get the full benefit if they have an annual federal tax liability of at least $7,500.
Buyers can qualify if the new plug-in electric or fuel-cell vehicle is “placed in service” after Dec. 31, 2022. A car is placed in service when the taxpayer “takes possession” of it, the IRS said; that may differ from the purchase date.
Some rules have already kicked in that limit the qualifying buyers and vehicles:

Income: Married couples don’t qualify for the new-vehicle credit if their modified adjusted gross income on a joint tax return exceeds $300,000. The limit is $150,000 for single tax filers and $225,000 for heads of household. Buyers can use the lesser of their income in the year they take delivery of the car or the prior year.

Vehicle price: The credit is unavailable if a manufacturer’s suggested retail price exceeds $80,000 for vans, sport utility vehicles and pickup trucks or $55,000 for other vehicles. Note: MSRP isn’t necessarily the price you pay for the car.

Manufacturing: The vehicle must have undergone final assembly in North America. Buyers who have a car’s Vehicle Identification Number (VIN) can consult a U.S. Department of Energy website to learn if it qualifies.

The aforementioned list of qualifying cars cited by the IRS are based on these criteria.

‘We don’t know what’s going to happen in March’

Coming IRS guidance — again, expected in March — adds two requirements for car batteries.
The pending rules will tie the $7,500 credit amount to whether a new clean vehicle’s battery meets a critical mineral and a battery component requirement.

Critical minerals: Broadly, the rule requires a certain share of the battery’s critical minerals be “extracted or processed in the United States, or in any country with which [it] has a free trade agreement in effect, or recycled in North America,” according to a Treasury Department document. That share rises over time: 40% or more in 2023; 50% in 2024; 60% in 2025; 70% in 2026; and 80% thereafter.

Battery components: At least half of the vehicle’s battery components (like battery cells and modules) must be manufactured or assembled in North America starting in 2023. That share increases to 60% in 2024 and 2025, and grows gradually to 100% in 2029.

Cars that meet one of these requirements get half the credit ($3,750). Cars that meet both get the full value.
It’s likely that few, if any, new clean vehicles will be eligible for the full $7,500 when these two requirements take effect.
“We’re encouraging consumers interested in buying and in a place to buy right now to jump on it,” said Ingrid Malmgren, policy director at Plug In America, a nonprofit advocacy group for clean vehicles. “Because we don’t know what’s going to happen in March.”
Until March, the credit’s full value is tied instead to a calculation for battery capacity.
Vehicle specs like battery capacity, final assembly location and VIN are listed on the window sticker, the IRS said.

Drivers have other options to snag tax credits

However, there are other options available for buyers if the current list of eligible vehicles is shortened come March.
Households can buy a used clean vehicle and may get a tax break worth up to $4,000, experts said. That tax break, which became available Jan. 1, comes with some requirements for car and buyer but are generally less stringent than the ones for new vehicles, experts said.
Additionally, it’s possible dealers leasing clean cars can pass on some tax savings to consumers. In this case, a dealer claiming a tax credit for commercial clean vehicles might pass on some of its $7,500 tax break in a lease agreement or as a break on the down payment, for example, Malmgren said. This commercial credit isn’t subject to income, battery, assembly or MSRP requirements, she said.
However, consumers should ask dealers before leasing, she added, since it’s not a given such entities would qualify for a tax break or pass on money to consumers in a lease. More

A 2015 expansion of the Military Lending Act extended a cap on annual percentage rates at 36% for revolving credit.
As interest rates on debt climb, Congress may consider implementing a similar policy.
But other changes may better help consumers save, research finds.

Source: Getty Images

Rising credit interest rates have made it even more expensive to carry debts.
But a proposal in Congress that would cap rates on consumer loans at 36% may not be an effective way of curbing those higher costs of borrowing, according to new research from the Urban Institute’s Financial Well-Being Data Hub.

The report examines the effects of a previous policy, the 2015 expansion of the Military Lending Act, which also extended a 36% cap on annual percentage rates for revolving credit such as credit cards and overdraft lines of credit.
But the changes did not effectively result in enhanced consumer protections, the Urban Institute’s research found.
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One key reason why: The average APR on revolving loans was 17%, based on credit bureau data on residents of military communities with subprime credit scores.
The research focused on individuals with subprime credit scores because they are more likely to have higher annual percentage rates when they borrow, and therefore be affected by caps on those rates.

Because lenders were already charging rates at or below 36%, the policy did not affect their rates.
“It was well intentioned,” said Thea Garon, associate director at the Financial Well-Being Data Hub at the Urban Institute.

“Based on research, we found it did not have much of an effect at all on credit and debt outcomes among residents of military communities, specifically those with subprime credit scores,” Garon said.
Military community residents with subprime credit scores did not see meaningful changes in credit card ownership, the research found.
Borrowers with subprime credit scores also did not see a decline in delinquency or collection rates on revolving loans.
Nor did service members with subprime credit scores see changes to their credit scores.

‘Detrimental effects on the most vulnerable’

Getty Images

Importantly, those with the lowest subprime credit scores of less than 500 may have seen reduced credit access.
“The policy may have had detrimental effects on the most vulnerable consumers,” Garon said.
A bill put forward in Congress called the Veterans and Consumers Fair Credit Act seeks to implement a 36% cap on debt for veterans and other consumers. The policy would apply to both closed- and open end credit products.
The Democratic proposal has support from a coalition of 188 organizations.

“Extending this 36% APR cap to all forms of revolving credit would be unlikely to improve debt and credit outcomes for all borrowers, not just for those in military communities,” Garon said.
Based on the findings of the research, policy makers may want to consider other changes to boost consumer protections rather than the 36% cap, according to the Urban Institute.
For example, fee disclosures may help borrowers better understand the costs of loans over time, which research has shown may help discourage them from taking payday loans.
Moreover, when payday loan terms allow for installment payments over six months, rather than in one lump sum, borrowers may spend 42% less to repay those debts, according to the report.

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