The federal government recently announced that it has issued over $1 billion in tax credits as an upfront cash incentive to buyers of electric vehicles. This program aims to make EVs more affordable for many households relative to their gasoline-powered counterparts and is a big component of the Biden administration’s push to reduce U.S. greenhouse gas emissions and curb global warming.
Under the Inflation Reduction Act, tax credits worth up to $7,500 for new EVs and $4,000 for used EVs can now be delivered by car dealers at the point of sale, starting from January 1. Previously, consumers had to wait until filing their annual tax return to get the federal credit, which could take months or more than a year after their vehicle purchase. This new provision allows Americans to receive the EV tax credit upfront regardless of their federal tax liability, a change that wasn’t possible before 2024.
Deputy Treasury Secretary Wally Adeyemo referred to the $1 billion threshold as a “major milestone” that was reached quicker than expected. The upfront delivery of the tax credit allows consumers to see the savings immediately, rather than waiting for the next tax season. Adeyemo also highlighted that the EV tax credits are making electric cars very price competitive and, in some cases, cheaper than traditional combustion engine vehicles available on car lots.
Not all new EV models currently qualify for a federal tax credit, as automakers must meet specific manufacturing standards set forth in the Inflation Reduction Act. The law requires certain parts of the car to be manufactured in North America to be eligible for a full or partial EV credit. The U.S. Energy Department maintains an updated list of automakers and models that qualify for the tax credit. Additionally, there are income limits and restrictions based on the sticker price of the EVs. For example, the tax credit for new EVs is not available to single and married taxpayers if their annual income exceeds $150,000 and $300,000, respectively.
Senate Republicans introduced a measure in May to end federal tax credits for electric vehicles, arguing that the tax credit benefits the wealthiest Americans and costs taxpayers billions of dollars. However, Adeyemo pointed out the income limits and expected lifetime financial savings for households that qualify for the tax credit, suggesting that it does not solely benefit the wealthiest households.
The upfront delivery of tax credits for electric vehicles is a significant step towards making EVs more affordable and accessible to a wider range of consumers. This program not only aims to reduce greenhouse gas emissions but also encourages the transition to sustainable transportation options. While there may be criticisms and limitations to the tax credit program, its overall impact on the adoption of electric vehicles is undeniable.