$1 billion in EV tax credits provided upfront to buyers, says Treasury Department, IRS

The federal government has issued more than $1 billion in tax credits as a cash incentive for electric vehicle buyers, the U.S. Treasury Department and the Internal Revenue Service said Wednesday.

The Inflation Reduction Act created a mechanism whereby tax credits for buyers of new and used electric vehicles – worth up to $7,500 and $4,000 respectively – could be delivered to the point of sale by car dealers.

The provision took effect on January 1.

Previously, consumers had to wait until they filed their annual tax returns, perhaps months or more than a year after purchasing their vehicle, before receiving the federal credit. Americans can now also get the EV tax credit upfront regardless of their federal tax liability, which was not the case before 2024.

“This has never been done before,” Deputy Finance Minister Wally Adeyemo said at a news conference.

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He called the $1 billion threshold an “important milestone” that was reached faster than expected.

“Many people would like to see the savings now instead of waiting to file their taxes next year,” Adeyemo said.

The transition to electric vehicles is a big part of the Biden administration’s push to reduce greenhouse gas emissions in the U.S. and combat global warming.

The federal tax credit is intended to make electric vehicles more affordable for many households compared to their gasoline-powered counterparts.

The EV tax credits make the cars “very competitive in price and in some cases cheaper than the internal combustion engine vehicles” available on car lots, Adeyemo said.

The average purchase price for electric cars was $55,242 in April 2024, compared to $44,989 for traditional cars, according to data from Cox Automotive. However, prices are falling rapidly: average prices for new electric vehicles fell 9% in the first quarter of 2024 compared to the same period last year, the report said.

However, currently not all new EV models are available for a federal tax credit as automakers strive to meet certain production standards in the Inflation Reduction Act. The law requires certain parts of the car to be manufactured in North America to qualify for full or partial EV credit.

The US Energy Department maintains an updated list of car manufacturers and models that qualify for an EV credit.

Since the beginning of the year, about 125,000 consumers have opted to get their “new, clean car” tax credit as an upfront payment, according to data from the Treasury Department and the IRS. That accounts for 90% of transactions for new electric vehicles that qualified for an advance, they said.

In addition, 25,000 buyers have opted to prepay for the credit for a “previously owned clean vehicle,” representing 80% of eligible transactions, the agencies said.

These figures represent only “a small portion” of all electric vehicles sold in the U.S. since the start of the year, Adeyemo said. Consumers who lease or purchase electric cars that do not qualify for credits are not included.

Republicans in the Senate a measure introduced in May to end federal tax credits available for electric vehicles and a separate one to end tax breaks for EV 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 EV bill, which he co-sponsored.

When asked about such criticism of the EV tax credit, Adeyemo pointed to the limitations of the tax credit on income and expected financial savings of households, suggesting that the richest households are not benefiting from it.

For example, single and married taxpayers are not eligible for a tax credit for new electric vehicles if their annual income exceeds $150,000 and $300,000, respectively. Those income limits are lower for used electric cars: $75,000 and $150,000, respectively.

There are also restrictions based on the price of the EV sticker. For example, SUVs and smaller cars are only eligible if their sticker prices are less than $80,000 and $55,000, respectively.