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The federal government has awarded more than $1 billion in tax credits as an upfront cash incentive for electric vehicle buyers, the U.S. Treasury and Internal Revenue Service said Wednesday.
The Inflation Reduction Act created a mechanism to allow auto dealers to provide tax credits to buyers of new and used electric vehicles valued at up to $7,500 and $4,000, respectively, at the point of sale.
The provision came into force on January 1st.
Previously, consumers had to wait until they filed their annual tax return, perhaps months or more than a year after purchasing their vehicle, to receive the federal credit. Americans can also now receive the electric vehicle tax credit up front regardless of their federal tax liability, which was not the case before 2024.
“This has never happened before,” said Deputy Finance Minister Wally Adeyemo during a press briefing.
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He called the $1 billion threshold a “huge milestone” that was reached faster than expected.
“Many people would like to see the savings immediately instead of waiting to file their taxes next year,” Adeyemo said.
I’m trying to help electric vehicles stay price competitive
The transition to electric vehicles is a key part of the Biden administration’s efforts to reduce U.S. greenhouse gas emissions and curb global warming.
The federal tax credit aims to make electric vehicles more affordable for many households compared to gasoline-powered counterparts.
The electric vehicle tax credits make the cars “very price competitive and in some cases cheaper than the internal combustion engine vehicles” available at car lots, Adeyemo said.
According to data from Cox Automotive, the average purchase price for electric cars in April 2024 was $55,242, compared to $44,989 for conventional cars. However, prices are falling quickly: average prices for new electric vehicles fell 9% in the first quarter of 2024 compared to the same period last year, it said.
However, not all new electric car models are currently eligible for a federal tax credit because automakers want to meet certain manufacturing standards in the Inflation Reduction Act. The law requires certain parts of the car to be manufactured in North America to receive a full or partial electric vehicle credit.
The U.S. Department of Energy maintains an updated list of automakers and models that are eligible for an electric vehicle credit.
There are limitations to the availability of electric vehicle tax credits
According to the Treasury Department and the IRS, about 125,000 consumers have elected to receive their “new clean vehicle” tax credit as an advance payment since the beginning of the year. That accounts for 90% of new electric vehicle transactions eligible for prepayment, they said.
Additionally, 25,000 buyers opted to prepay the loan for “clean, previously owned vehicles,” representing 80% of qualifying transactions, the agencies said.
Those numbers represent only a “small portion” of all electric vehicles sold in the U.S. year-to-date, Adeyemo said. They do not include consumers who lease electric vehicles or make purchases that do not qualify for credit.
Senate Republicans in May introduced a measure to eliminate federal tax credits for electric vehicles and a separate measure to eliminate tax credits for electric vehicle charging stations.
“The electric vehicle tax credit benefits the wealthiest Americans and costs hardworking American taxpayers billions of dollars,” Sen. John Barrasso, R-Wyo., said in a written statement about the electric vehicle bill, which he co-sponsored.
When asked about this criticism of the electric vehicle tax credit, Adeyemo pointed to the tax break’s cap on households’ income and expected lifetime financial savings, suggesting that the wealthiest households are not benefiting from it.
For example, single and married taxpayers are not eligible for a new electric vehicle tax credit if their annual income exceeds $150,000 and $300,000, respectively. These income limits are lower for used electric vehicles: $75,000 and $150,000, respectively.
There are also restrictions based on the price of the electric vehicle stickers. For example, SUVs and smaller cars only qualify if their sticker prices are under $80,000 and $55,000, respectively.
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2024-06-12 09:00:01
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