On June 5, the IRS released Notice 2023-41, announcing that due to the increase in the price of natural gas in recent years the Marginal Well Credit is completely phased out for the 2022 tax year.
The production-based tax credit had been calculated annually based on the average wellhead price of domestic natural gas for the prior year – known as the reference price – and could be claimed on the production from each of the taxpayer’s eligible marginal wells. The credit was limited when the reference price exceeded a specified price point, which was adjusted annually for inflation. More information the calculation of the credit and limitations can be found in prior Our Thoughts On articles.
The tax credit had proven to be beneficial for eligible taxpayers in previous years.
A summary of the credit per MCF for prior years is below.
| Tax Year | Credit Allowed per MCF |
|---|---|
| 2016 | $0.14 |
| 2017 | $0.51 |
| 2018 | $0.00 |
| 2019 | $0.08 |
| 2020 | $0.66 |
| 2021 | $0.67 |
| 2022 | $0.00 |
Schneider Downs is keeping a close watch on gas prices to evaluate the potential of a return of the tax credit for 2023. If you’re interested in learning more about the credit or have any questions, please reach out to your SD tax advisor for information.
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