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New data from the Treasury Department shows that the majority of Americans who purchase eligible new electric vehicles are choosing to receive the associated tax credits upfront from auto dealers rather than waiting until tax season. .
About 90% of consumers eligible for the “new clean car” tax credit worth up to $7,500 request the tax credit as an upfront payment, Treasury officials said.
“This means it’s popular,” said Ingrid Malmgren, policy director at the nonprofit EV advocacy group Plug in America.
Prepayments are an optional new financial mechanism created by the Inflation Control Act signed into law in 2022 by President Joe Biden. This allows dealers to offer upfront discounts to qualified buyers and to consumers as a partial payment, down payment, or cash payment on an EV. . The IRS will then issue a refund to the dealer.
Not everyone will be eligible for the full $7,500, depending on factors such as the type of car they buy.
The prepayment provision began on January 1st.
Previously, all EV buyers had to wait until the tax season of the year following their purchase to claim the associated tax credits, which could be several months or more.
The Clean Vehicle Credit is non-refundable, so households with a lower annual tax liability may not be able to claim the full amount of the tax reduction when they file their tax return. However, this is not the case when paying in advance. Eligible buyers will receive their full value, regardless of their tax liability.
You can also pay in advance to purchase a used EV. Previously owned clean vehicle credits are worth up to $4,000.
Malmgren said paying up front allows for affordability. For example, with a down payment, households may not need to raise money elsewhere to cover the down payment, he said. It can also reduce your monthly car payment costs and overall interest, she added.
Auto dealers have filed point-of-sale reports with the IRS for about 100,000 new and used EVs since Jan. 1, according to Treasury officials, which helps consumers qualify for tax breaks. It is said that it is showing.
The Treasury Department has issued more than $580 million in advances since January 1, the official said.
“In the four months since this new rule went into effect, demand has increased and American consumers have saved more than $500 million,” Treasury spokeswoman Harris Talwar said in a written statement.
Precautions for prepayment
Of course, there are some caveats to paying in advance. First, not all car dealers participate.
To date, more than 13,000 dealers have registered with the IRS Energy Credits Online portal to facilitate these financial transfers to consumers. This number is up from more than 11,000 in early February.
For reference, the number of franchised retail auto dealers in the U.S. in the first half of 2023 was 16,839, according to the National Automobile Dealers Association. According to Cox Automotive’s 2021 estimates, there are also about 60,000 independent car dealers, but they mainly sell used cars. Not all of these franchises or independent dealers necessarily sell EVs.
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Additionally, not all EVs or consumers qualify for tax breaks.
The Inflation Control Act includes manufacturing requirements for new EVs aimed at boosting domestic production and temporarily limits which models qualify for full or partial tax credits.
According to data from the U.S. Department of Energy as of March 18, there are currently 36 new EV models eligible for tax breaks in 2024.
Manufacturers of these models include Acura, Audi, Cadillac, Chevrolet, Chrysler, Ford, Honda, Jeep, Lincoln, Nissan, Rivian, Tesla, and Volkswagen. Some models may receive half his $3,750 tax credit instead of the full $7,500.
Vehicles and buyers must also meet other requirements, including household income limits and EV sticker price standards.
Buyers must sign an affidavit at a car dealership confirming that their annual income does not exceed certain eligibility criteria. If a mistake is made, the consumer typically has to repay the tax deduction to her IRS.
