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The majority of Americans who purchase qualifying new electric vehicles are choosing to receive a matching tax credit from the car dealer in advance rather than waiting until tax season, according to new data from the Treasury Department.
About 90% of consumers eligible for a tax credit for “new, clean vehicles” worth up to $7,500 have applied to receive their tax break as an advance payment, according to a Treasury official who provided the background .
“That means it’s popular,” Ingrid Malmgren, policy director for the nonprofit EV advocacy group Plug In America, said of the data.
Advance payments are a new, optional financial mechanism created by the Inflation Reduction Act, which President Joe Biden signed into law in 2022. They allow dealers to offer qualified buyers an upfront rebate that is paid out to consumers as EV partial payment, down payment, or cash payment. The IRS then reimburses the merchant for the costs.
Not everyone will necessarily be eligible for the full $7,500, depending on factors such as the type of car purchased.
The advance payment regulation came into force on January 1st.
Previously, all electric vehicle buyers had to wait until tax season in the year after purchase to claim applicable tax credits, meaning they could wait several months or longer.
Because the Clean Vehicle Credit is non-refundable, households with low annual tax burdens may not be able to claim the full value of the tax credit on their tax return. However, this is not the case with advance payments: those entitled to purchase receive the full value, regardless of tax liability.
Prepayment is also possible for the purchase of used electric vehicles. The value of the credit for a clean, pre-owned vehicle is up to $4,000.
The upfront payments can help with affordability, Malmgren said. For example, prepayment means households may not need to find other funds to cover a down payment, she said. It can also reduce the cost of monthly car payments and overall interest charges, she added.
According to the Treasury Department official, auto dealers have filed about 100,000 new and used electric vehicle sales reports with the IRS since Jan. 1, signaling a consumer is eligible for a tax break.
The Treasury has made more than $580 million in advance payments since Jan. 1, the official said.
“Demand is high four months after the implementation of this new provision as American consumers save more than half a billion dollars,” Haris Talwar, a Treasury Department spokesman, said in a written statement.
Reservations regarding advance payments
Of course, there are some restrictions when it comes to advance payments. For one thing, not all car dealers are taking part.
To date, more than 13,000 merchants have registered with the IRS Energy Credits online portal to facilitate these financial transfers to consumers. That number is up from over 11,000 in early February.
For comparison, there were 16,839 franchised retail auto dealers in the U.S. in the first half of 2023, according to the National Automobile Dealers Association. There are also about 60,000 independent car dealers, but most of them sell used cars, according to a 2021 estimate from Cox Automotive. Not all of these franchises or independent dealers necessarily sell electric vehicles.
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Additionally, not all electric vehicles or consumers are eligible for a tax break.
The Inflation Reduction Act imposes manufacturing requirements for new electric vehicles designed to encourage greater domestic production, temporarily limiting the number of models eligible for a full or partial tax credit.
According to data from the U.S. Department of Energy on March 18, 36 new electric car models are currently eligible for a tax break in 2024.
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 the tax credit – $3,750 – instead of the full $7,500.
Cars and buyers must also meet other requirements, including household income limits and electric vehicle sticker price thresholds.
Car dealerships require buyers to sign an affidavit certifying that their annual income does not exceed certain eligibility thresholds. A mistake would generally result in consumers having to pay the tax break back to the IRS.
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2024-04-12 16:20:26
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