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The federal government has provided more than $1 billion in tax breaks as an upfront cash incentive for electric vehicle buyers, the U.S. Treasury Department and Internal Revenue Service announced Wednesday.
The Inflation Relief Act created a mechanism through which tax breaks for buyers of new and used electric vehicles – costing up to $7,500 and $4,000 respectively – can be delivered by car dealers to the point of sale.
The regulation came into force on January 1.
Previously, consumers had to wait to file their annual tax return, perhaps several months or more than a year after purchasing a car, to receive the federal credit. Americans can now also get the electric vehicle tax credit upfront regardless of their federal tax liability, something that wasn’t the case until 2024.
“This has never been done before,” Deputy Finance Minister Wally Adeyemo said during a news conference.
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He called the $1 billion threshold an “important milestone” that was reached faster than expected.
“A lot of people would like to see the savings now rather than waiting to file their taxes next year,” Adeyemo said.
Trying to help electric cars compete on price
The transition to electric vehicles is an important component of the Biden administration’s efforts to reduce U.S. greenhouse gas emissions and curb global warming.
The federal tax credit aims to make electric vehicles more affordable for many households than their gas-powered counterparts.
Tax credits for electric vehicles make the vehicles “very price competitive and in some cases cheaper than internal combustion engine vehicles” available on parking lots, Adeyemo said.
average purchase price According to Cox Automotive, the cost of electric vehicles in April 2024 was $55,242 versus $44,989 for traditional vehicles. However, prices are falling quickly, with average prices for new electric vehicles down 9% in the first quarter of 2024 compared to the same period last year, it said.
However, not all new electric vehicle models are currently eligible for the federal tax credit as automakers strive to meet certain manufacturing standards mandated by the Inflation Relief Act. The law requires certain parts of the vehicle to be manufactured in North America to be eligible for full or partial EV credit.
US Department of Energy maintains updated list automakers and models that are eligible for the EV credit.
There are restrictions on the availability of tax credits for electric vehicles.
Since the beginning of the year, about 125,000 consumers have chosen to take the “clean new car” tax credit as a down payment, according to Treasury and IRS data. This accounts for 90% of new EV transactions that are eligible for down payment, they said.
Additionally, 25,000 buyers opted for a “clean previously owned vehicle” loan down payment, accounting for 80% of eligible transactions, the agencies said.
According to Adeyemo, these figures represent only a “small number” of all electric vehicles sold in the United States since the beginning of the year. This does not include consumers who lease electric vehicles or make purchases that do not qualify for the credit.
Senate Republicans introduced a measure in May eliminates federal tax credits available to electric vehicles and a separate one to eliminate tax credits for electric vehicle charging stations.
“Tax breaks for electric vehicles benefit the wealthiest Americans and cost hardworking American taxpayers billions of dollars,” Sen. John Barrasso, R-Wyo., said in a written statement about the electric vehicle bill he co-sponsored.
Adeyemo, when asked about such criticism of the electric vehicle tax credit, pointed to the tax credit’s limitations on income and households’ expected lifetime financial savings to suggest it does not benefit the wealthiest households.
For example, single and married taxpayers are not eligible for tax credits for new electric vehicles if their annual income exceeds $150,000 and $300,000, respectively. These income limits are lower for used electric vehicles: $75,000 and $150,000, respectively.
There are also restrictions based on the EV sticker price. For example, SUVs and smaller cars only qualify if they are priced below $80,000 and $55,000, respectively.