Tax credits are good, but on-the-spot tax credits are really killing it

The new year rolled out a new plan where EV shoppers could get on-the-spot tax rebates when purchasing a new electric vehicle, with auto dealers then handling the paperwork and waiting to get reimbursed by the government. The US government says it has already paid out $135 million to auto dealers that signed up for the program so far this year.

Prior to this year, EV buyers could only take advantage of the $7,500 new EV tax credit (or $4,000 on used EVs) when they filed their tax returns the following year. Since January 1, EV buyers could transfer those credits to auto dealers at the time of sale, dropping the overall price of the vehicle for the consumer and leaving the annoying paperwork and wait time to the dealer.

The Internal Revenue Service reports that it has received more than 25,000 time-of-sale reports, including more than 19,500 (or 78%) with advance payment requests, reports Reuters. Overall, $135 million has been paid to dealers since the start of the year.

“One month into implementation of this provision, there is strong demand for this new upfront discount, which will continue momentum in growing this industry in the United States,” Deputy Treasury Secretary Wally Adeyemo said, according to Reuters.

Breaking it down even more, the requests include 17,500 orders for new EVs and 2,000 for used vehicles. More than 11,000 auto dealers in the US have already registered for the program, including more than 8,000 registered for advanced payments, Reuters reports.

Of course, the number of vehicles that qualify for the full rebate, or any rebate, have shrunk as of this year, and President Biden’s new restrictions on electric vehicles and battery sourcing have also kicked in. To qualify at all, vehicles have to be manufactured in North America with an MSRP under $80,000 for an SUV and $55,000 for a standard or smaller car.

The number of EV models that are eligible fell from 43 to 19 as of January 1, but since Volkswagen has regained eligibility on versions of its ID.4 EV.

Also, consumers must meet income limits to qualify for the tax credit at the time of purchase, or they need to repay the government when filing their taxes. For new vehicles, the adjusted gross income limit is $300,000 for married couples and $150,000 for individuals.

Vehicles can qualify for a federal tax credit of $3,750 if automakers adhere to specific guidelines on sourcing battery materials. To get the rebate, 40% of the value of critical minerals used in the battery need to be extracted or processed in the US or in a country that is a US free trade agreement partner, or they must have been made from recycled materials in North America.

Also, a vehicle will qualify for an additional $3,750 if 50% of the value of critical battery components are manufactured or assembled in North America. Those percentages will go up every year until the credit expires in 2032.

Additionally, all EVs that contain any battery components from a foreign entity of concern (as in China) are now excluded, and that rule applies to battery minerals as of 2025.