90% of qualifying EV buyers get $7,500 tax credit as upfront payment

The majority of Americans who purchase eligible new electric vehicles are choosing to receive an associated tax credit from the car dealership up front instead of waiting until tax season, according to new data from the Treasury Department.

About 90% of consumers eligible for a “clean new vehicle” tax credit – worth up to $7,500 – requested that their tax break be provided as an advance payment, according to a department official of the Treasury speaking behind the scenes.

“That means it’s popular,” Ingrid Malmgren, policy director of the nonprofit electric vehicle advocacy group Plug In America, said of the data.

Prepayments are a new optional financial mechanism created by the Inflation Reduction Act, signed by President Joe Biden in 2022. They allow dealers to provide an upfront discount to eligible buyers, in the form of a partial payment of EV, deposit or cash payment to consumers. . The IRS then reimburses the dealer.

Not everyone will necessarily qualify for the full $7,500, depending on factors such as the type of car purchased.

The prepayment provision came into effect on January 1.

Previously, all EV buyers had to wait until tax season the year after their purchase to claim the corresponding tax credits, meaning they could wait several months or more.

Because the Clean Vehicle Credit is non-refundable, households with a low annual tax burden may not be able to claim the full value of the tax relief on their returns. But that’s not the case with advance payments: eligible buyers get the full value, regardless of tax payable.

Advance payments are also available for the purchase of used electric vehicles. The clean used vehicle credit is worth up to $4,000.

Prepayments can help with affordability, Malmgren said. For example, down payment means households may not need to find funds elsewhere to cover a down payment, she said. It can also reduce the cost of monthly car payments and overall interest costs, she added.

Auto dealers have filed about 100,000 new and used electric vehicle sales hours reports with the IRS since Jan. 1, indicating a consumer is eligible for a tax break, according to the official. Treasure.

The Treasury has issued more than $580 million in advances since Jan. 1, the official said.

“Demand is high four months after this new provision was implemented, with U.S. consumers saving more than half a billion dollars,” Haris Talwar, a Treasury spokesperson, said in a written statement.

Of course, there are some reservations regarding advance payments. For one thing, not all car dealerships participate.

More than 13,000 dealers have so far registered on the IRS Energy Credits Online portal to facilitate these financial transfers to consumers. That number is up from more than 11,000 in early February.

As a reminder, there were 16,839 franchised auto dealerships in the United States during the first half of 2023, according to the National Automobile Dealers Association. There are also about 60,000 independent car dealerships, although they largely sell used cars, according to a 2021 estimate from Cox Automotive. Not all of these franchises or independent dealerships necessarily sell electric vehicles.

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Additionally, not all electric vehicles or consumers will be eligible for tax relief.

The Inflation Reduction Act imposes manufacturing requirements for new electric vehicles — intended to encourage increased domestic production — that temporarily limit which models qualify for a full or partial tax credit.

There are currently 36 new electric vehicle models receiving a tax break in 2024, according to data from the U.S. Department of Energy as of March 18.

Manufacturers of these models include Acura, Audi, Cadillac, Chevrolet, Chrysler, Ford, Honda, Jeep, Lincoln, Nissan, Rivian, Tesla and Volkswagen. Some models are eligible for half of the tax credit, or $3,750, instead of the full $7,500.

Cars and buyers must also meet other requirements, including household income limits and thresholds on electric vehicle sticker prices.

Buyers must sign an affidavit at car dealerships affirming that their annual income does not exceed certain eligibility thresholds. Making a mistake would generally require consumers to repay the tax break to the IRS.