$1 billion in EV tax credits issued upfront to buyers, say Treasury, IRS

Halfpoint Images | Moment | Getty Images

The federal government has issued more than $1 billion in tax credits as an upfront cash incentive to buyers of electric vehicles, the U.S. Treasury Department and Internal Revenue Service said Wednesday.

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

The provision kicked in on Jan. 1.

Previously, consumers had to wait until filing their annual tax return, perhaps months or more than a year after their vehicle purchase, to get the federal credit. Americans can now also get the EV tax credit upfront regardless of their federal tax liability, which wasn’t the case prior to 2024.

“This has never been done before,” Deputy Treasury Secretary Wally Adeyemo said during a press call.

He called the $1 billion threshold a “major milestone” that was hit faster than expected.

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

Trying to help EVs compete on price

The transition to EVs is a big component of the Biden administration’s push to reduce U.S. greenhouse gas emissions and curb global warming.

The federal tax credit aims to make EVs more affordable for many households relative to their gasoline-powered counterparts.

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

The average purchase price for electric cars was $55,242 in April 2024, versus $44,989 for traditional cars, according to Cox Automotive data. However, prices are quickly dropping: Average prices for new EVs declined by 9% in the first quarter of 2024 relative to the same period last year, it said.

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

The U.S. Energy Department maintains an updated list of automakers and models that qualify for an EV credit.

There are limitations on EV tax credit availability

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

In addition, 25,000 buyers have opted for upfront payment for the “previously owned clean vehicle” credit, representing 80% of qualifying transactions, the agencies said.

These figures account for just “a small amount” of all EVs sold in the U.S. since the start of the year, Adeyemo said. They don’t include consumers who lease EVs or purchases that don’t qualify for credits.

Senate Republicans introduced a measure in May to end federal tax credits available for electric vehicles and a separate one to end the tax breaks for EV charging stations.

“The electric vehicle tax credit benefits the wealthiest of 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.

Adeyemo, when asked about such criticism of the EV tax credit, pointed to the tax break’s limits on income and on households’ expected lifetime financial savings to suggest it doesn’t benefit the wealthiest households.

For example, single and married taxpayers are ineligible for a tax break for new EVs if their annual income exceeds $150,000 and $300,000, respectively. Those income limits are lower for used EVs: $75,000 and $150,000, respectively.

There are also limitations based on EV sticker price. For example, SUVs and smaller cars qualify only if their sticker prices are below $80,000 and $55,000, respectively.