The Tax Credit Rules for Electric Vehicle Buyers: New Guidance for the 2024-2020 Electric Vehicle Rebate and Implications for the Treasury Department
The Treasury Department released new guidance Friday outlining how car dealers can give customers instant access to the electric vehicle rebate starting in January 2024. It’s the latest effort by the Biden administration to bring down the price of EVs in the hopes that more people will buy them.
Significantly, a buyer taking the credit at the dealership can get it regardless of what their tax bill is that year. A buyer used to need to owe a large amount of taxes to get the full benefit of the credit.
The study by George Washington University found that many car buyers prefer to get the credit when they need it the most.
Now, dealers can apply the credit at the time of purchase — effectively making it a discount — or provide the rebate to the buyer as cash. Participating dealers will have to register through an IRS portal to apply the credit at the time of purchase. Buyers will have to confirm to dealers that they fall within the income limits outlined in the tax credit rules before accepting the rebate.
Some dealers have expressed concerns about having to foot the bill for customers while they wait for the government to pay them back. They worry about a repeat of the so-called “Cash for Clunkers” program from 2009, in which dealers provided a cash rebate to owners trading in older, less efficient vehicles. At the time, dealers complained about not receiving repayments in a timely fashion.
This time will be different, the IRS promises. According to the guidance, most dealers will receive repayment for the rebate within 72 hours and will be able to track the progress in real time through an online portal.
Can Buyers with a Cap on Income Adjusted to the Cost of a New EV Be Enrolled in a Tax Credit?
A cap on income for buyers and limits to the cost of a car are included in the credit. The rules about how the cars are produced, including where the battery components come from, make some models not eligible.
One of the major customer concerns is addressed by that. As of now, buyers have to do a lot of homework to figure out whether an EV they want to buy would qualify for a tax credit — navigating through a myriad of complicated and shifting rules.
That functioned as an income minimum since many families owe less than they owe in taxes. It was also just another headache for people trying to figure out how much the credit was actually worth to them.
Buyers can qualify under the income cap using either the current year’s income or the previous year’s, whichever is lower. If it turns out their income was over the cap in both years, and they already received the tax credit through a dealership, they would need to repay the tax credit to the IRS.
The maximum income limits for a new vehicle are $150,000 for an individual, $250,000 for a head of household and $300,000 for married couples.
The changes will make a difference, according to Elizabeth Klar, the vice president of the electric vehicle practice atJD Power. The monthly payments will increase and you won’t have to finance it at a higher price, but you do have to wait for that tax rebate down the line.
