Driving electric vehicle adoption

Treasury Department Proposes Offering the $7,500 EV Tax Credit as a Point-Of-Sale Purchase Discount in 2024

The U.S. Department of the Treasury’s recent proposal could radically change the landscape for electric vehicle (EV) purchases. If enacted, the proposed rules would allow car dealers to offer an EV tax credit to consumers, effectively reducing the purchase price right at the point of sale. This would apply regardless of the buyer’s federal tax liability starting from January 1, 2024.

This move is significant as it democratizes access to EVs, extending the financial benefits to all eligible buyers. Under these rules, a new car buyer could see a discount of up to $7,500, while used car buyers could benefit from a $4,000 discount, thus making EVs more affordable for a broader range of consumers.

(Image by 9310613 from Pixabay)

New rule would benefit lower-income earners

Dealers were always expected to provide point-of-sale discounts in 2024, as stipulated in the text of the Inflation Reduction Act. Nevertheless, the issue related to tax liability remained a point of uncertainty. In the current scenario, buyers qualify for the complete tax break only if their federal tax liability is substantial enough; otherwise, they may receive a reduced credit or possibly none at all, given the “nonrefundable” nature of the credit. If the Treasury’s proposal is enacted, it would significantly expand the consumer pool, primarily benefiting lower-income earners, typically with smaller tax liabilities, making them eligible for the full value of the EV tax credit.

Electric car buyers will receive the tax break as an upfront discount at the point of sale

This proposal introduces a significant change in how consumers receive the EV tax break. Instead of waiting until they file their annual tax returns, consumers will receive the tax break as an upfront discount at the point of sale. This is possible through consumers transferring their new clean vehicle credit ($7,500) or the used clean vehicle credit ($4,000) to the car dealer, who then reimburses the consumer with the credit’s value. The IRS is expected to issue payments back to the dealers within 72 hours, according to the Treasury.

The car dealers are obligated to provide consumers with the full credit amount available for the vehicle and must supply written confirmation detailing the amount and vehicle eligibility. Notably, the payment from the dealer to the consumer does not count towards the taxpayer’s gross income.

The Treasury’s proposal emerges when many EV models find it difficult to qualify for the full $7,500 credit, at least temporarily. This is due to manufacturing requirements included in the Inflation Reduction Act.

Consumers must self-attest eligibility under the new proposal

There are a few caveats to consider in this proposal. Firstly, the Treasury’s proposal is not final and is subject to a 60-day public comment period. Although experts do not anticipate any substantial revisions, it’s possible that some changes could be made to the final version. Secondly, not all dealers may participate in this program. To do so, they must register via IRS Energy Credits Online, a new website designed for this purpose.

Furthermore, buyers must file an income tax return for the year in which the vehicle transfer election is made. Another point is that car dealers are not responsible for analyzing consumers’ income to determine their eligibility for an EV credit, as per the Treasury’s proposal. It’s up to the buyers to self-attest their eligibility.

According to the Treasury, individuals may self-attest their eligibility for the EV credit if they anticipate their income to fall below the respective thresholds in the year the vehicle is “placed in service.” Alternatively, this can be based on the income from the previous year.

The annual income limits for the maximum $7,500 credit for new vehicles are $300,000 for married couples filing a joint tax return, $225,000 for heads of household, and $150,000 for single tax filers.

Meanwhile, the income limits for the $4,000 credit for used vehicles are $150,000 for married couples filing a joint tax return, $112,500 for heads of household, and $75,000 for single tax filers.

These limits apply to the “modified adjusted gross income.” It is important to note that any discrepancies in the self-attested eligibility could result in buyers being obliged to return the full credit value to the IRS at tax time.

EVinfo.net supports the proposed change to the tax credit, as we believe it will not only make EV adoption more equitable to lower-income buyers, but also encourage EV adoption through buyers receiving the discount at the time of purchase, rather than waiting for a credit on their tax refunds.