The federal government is implementing changes to the electric vehicle (EV) tax credit that will make it easier for consumers to access the savings starting in 2024. The revisions come as part of the Inflation Reduction Act passed in August 2022 and aim to incentivize more drivers to go electric.
How the Revised EV Tax Credit Works
The current EV tax credit offers up to $7,500 back to consumers who purchase a new electric vehicle. However, the credit’s complex rules and delayed payout have posed challenges.
“One big change is that you’ll qualify for the credit upfront when you buy a car at a dealership, rather than claiming it as part of your tax return,” said Mark Matthews, president of the Electrified Transportation Association. “That means you won’t have to potentially wait months to get your money back.”
Additionally, all eligible buyers will now receive the full tax break even if they don’t owe federal taxes. Currently, filers only receive as much of the credit as they owe in taxes.
“By paying the credit up front and making it accessible to more Americans, the government aims to eliminate some of the existing barriers to EV adoption,” Matthews explained.
The tweaked EV tax credit will take effect on January 1, 2024 and apply to purchases of new EVs and fuel-cell vehicles. The Treasury Department and IRS are still finalizing specifics after considering public feedback on the initial rules released in September 2022.
Requirements for New EV Tax Credit Eligibility
The revised tax credit brings strict requirements on income, vehicle use, price and manufacturing criteria. Consumers should carefully review eligibility rules before purchasing a new electric vehicle in 2024 or later.
- Single tax filers: $150,000 annual adjusted gross income
- Head of household: $225,000
- Married couples: $300,000
- Must be for personal use, not business/commercial
- Primarily used in the United States
- Vans, SUVs, trucks: $80,000 retail price cap
- Other vehicles: $55,000 price cap
- Final assembly must occur in North America
- Percentage of battery components from North America or U.S. free trade partners
- Percentage of critical minerals sourced from U.S. or free trade partners
The Department of Energy offers a search tool to check specific EV models for tax credit eligibility. Only qualifying purchases will receive the full $7,500 credit. Consumers may still get a partial credit depending on the vehicle and its compliance with the manufacturing rules.
Used EV Tax Credit Offers Up to $4,000
For buyers who want a more affordable electric vehicle, the revised tax credit also applies to used EVs purchased in 2024 or later. Consumers can receive up to 30% of the sale price back, up to $4,000.
The used EV credit comes with lower income caps than the new vehicle credit. Eligible buyers cannot have:
- Single tax filers: $75,000 annual adjusted gross income
- Head of household: $112,500
- Married couples: $150,000
Additionally, used EVs must be at least two model years old at the time of sale and have a purchase price under $25,000. And buyers cannot have owned the specific vehicle before or claimed an EV credit on it previously. Vehicles must meet weight class limits and other requirements as well.
Future Outlook for EV Tax Credits
The restructured electric vehicle tax credits aim to grow EV adoption following the Biden administration’s climate goals. However, some experts say the policy could go further to make EVs affordable and accessible to all consumers.
“The credit is a step in the right direction, but it needs to be easier to use, available to all income levels, and based on the emissions reduction the vehicle delivers,” said Katherine Garczynski, director of Electrify America.
As more automakers ramp up EV production and new models enter the market, the administration may opt to revise the credit program again before its currently planned end date of 2032. For now, prospective EV buyers can look forward to simplified access to significant savings starting in 2024.