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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 on Wednesday.
The Inflation Reduction Act created a mechanism under which tax credits could be offered to buyers of new and used electric vehicles — worth up to $7,500 and $4,000, respectively — by car dealers at the point of sale.
This ruling began on January 1st.
Previously, consumers had to wait until they filed their annual tax returns, perhaps months or more than a year after purchasing their cars, to get the federal credit. Americans can now also get the upfront EV tax credit regardless of their federal tax liability, which wasn't the case before 2024.
“This has never been done before,” Deputy Treasury Secretary Wally Adeyemo said during a press call.
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He described the $1 billion threshold as a “major milestone” that was reached faster than expected.
“A lot of people want to see the savings now instead of waiting to file their taxes next year,” Adeyemo said.
Trying to help EVs compete on price
The transition to electric vehicles is a big component of the Biden administration's push to reduce U.S. greenhouse gas emissions and limit global warming.
The federal tax credit aims to make electric vehicles more affordable for many households than their gasoline-powered counterparts.
Adeyemo said the tax credits for electric vehicles make the cars “very competitively priced and in some cases cheaper than combustion engine vehicles” available in parking lots.
The average purchase price of electric cars was $55,242 in April 2024, compared to $44,989 for conventional cars, according to data from Cox Automotive. However, prices are falling quickly: average prices for new electric vehicles were down 9% in the first quarter of 2024 compared to the same period last year.
However, not all new electric vehicle models are currently available for the federal tax credit, as automakers aim to meet certain manufacturing standards in the ERA. The law requires that certain parts of a vehicle be manufactured in North America to qualify for the full or partial electric vehicle credit.
The U.S. Department of Energy maintains an updated list of automakers and models eligible for the EV credit.
There are limitations on the availability of the EV tax credit
Since the beginning of the year, about 125,000 consumers have opted for the “Clean New Vehicle” tax credit as a down payment, according to Treasury Department and IRS data. This represents 90% of transactions for new EVs eligible for a down payment, they said.
In addition, 25,000 buyers chose to prepay a “clean previously owned vehicle” credit, representing 80% of eligible transactions, the agencies said.
Adeyemo said these numbers represent only a “small amount” of all electric vehicles sold in the United States since the beginning of the year. It does not include consumers who lease electric vehicles or purchases that are not eligible for credits.
Senate Republicans introduced a measure in May to end federal tax credits available for electric vehicles and a separate measure to end tax credits for electric vehicle 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 electric vehicle bill, which he co-sponsored.
When Adeyemo was asked about such criticisms of the EV tax credit, he pointed to the limits of the tax credit on income and households' expected financial savings over a lifetime to suggest that it does not benefit wealthier households.
For example, single taxpayers are not eligible for a tax break on new electric vehicles if their annual income exceeds $150,000 and $300,000, respectively. These income limits are lower for used EVs: $75,000 and $150,000, respectively.
There are also restrictions based on the sticker price of an electric vehicle. For example, SUVs and minivans only qualify if their sticker prices are less than $80,000 and $55,000, respectively.
