There’s a new 1% tax on stock buybacks — here’s what it means for your portfolio

U.S. President Joe Biden gestures as he delivers remarks on the Inflation Reduction Act of 2022 at the White House in Washington, July 28, 2022.

The controversial practice of corporate stock buying backs has been added to by a new excise tax.

There are differing opinions on how it might affect investors.

The excise tax on the market value of net corporate shares is part of the inflation reduction act.

When a profitable public company has excess cash, it can purchase shares of its own stock on the public market.

A portion of company profits are sent back to investors in a way that is more widely used than dividends.

Personal finance says these are the priorities for the IRS funding. If you don't get a refund, you'll get the best college for financial aid.

One way to measure a company's financial performance is by measuring earnings per share.

The new issuance of stock options for executives and other employees has been argued to be a factor in the increase in the number of buy backs. Some share reduction benefits for regular investors can be offset by adding new shares.

S&P 500 companies bought back a record $881.7 billion of their own stock in 2021, up from $519.8 billion in 2020, due to low interest rates.

Apple, Microsoft, Facebook, and Bank of America make up one-quarter of the dollar value of stock buybacks over the past year, according to a new report.

Experts have differing opinions on how the provision will affect individual portfolios.

Arnott doesn't think it should have a big effect on investors. She said that companies with excess cash are more likely to pay dividends.

According to the Tax Policy Center, a 1% tax on share purchases could lead to a 1.5% increase in corporate dividends.

Alex Durante, federal tax economist at the Tax Foundation, said that increased dividends may have an unexpected impact.

He said that people with taxable accounts could potentially be affected.

The expected tax revenue may be changed by the shift from buy backs to dividends.

Estimates from the Joint Committee on Taxation show that the provision will raise about $74 billion over the next decade.

Even though the new law won't kick in until Jan. 1, 2023, some experts think companies will speed up stock purchases.

The company said on Friday that it will increase the number of shares it buys back to $5 billion from the previous $3.3 billion. The Home Depot announced a program to buy back shares.