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What Are the Facts About Electric Vehicle Incentives?

Man,Recharging,Battery,For,Electric,Car,During,Autumnal,Road,Trip

Electric vehicles (EVs) remain a key policy point in tackling climate change for the United States: transportation is the single largest source of emissions in the country, with light-duty vehicles accounting for fourteen times as much pollution as passenger planes. Policymakers have introduced incentive programs to encourage the purchase of EVs, but changing rules and a changing market have led to confusion among buyers about what is actually available. So how do these benefits work?

The federal government currently runs the Clean Vehicle Tax Credit, which offers a maximum credit of $7,500 for a new EV and $4,000 for a used vehicle. The catch is that starting on January 1 of 2024, a number of restrictions came into effect which limited the number of EV models that qualify for it and those who can benefit from it. Here are the details:

  • Price: only EVs that cost $80,000 or less (for vans, SUVs, and pickup trucks) or $55,000 or less for all other cars can qualify for the credit.
  • Production: at least 40% of the critical minerals in the EV’s battery must have been extracted in the US or one of its free trade partners, and at least 50% of its battery components must have been manufactured there too. This was designed to encourage the growth of domestic production capability for EVs in the United States, but it does further limit which vehicles can qualify. The vehicle must also have been “finally/fully assembled” in either the US, Mexico, or Canada.
  • Income: The EV tax credit is limited to those making a certain level of income. For married couples, the limit is $300,000; for a head of household, it’s $225,000; for all other buyers, the income cap is $150,000. Importantly, this cap is based on a buyer’s “modified adjusted gross income” and not adjusted gross income or taxable income—check here for a detailed explanation.

These restrictions, mainly those put on the EV manufacturing process, have meant that eligible models don’t remain constant, and fewer models have ended up qualifying for the credit in 2024. But experts are optimistic that more will qualify as domestic manufacturing expands. And in the meantime, the government maintains an updated list of all models that meet the thresholds.

As of 2024, the federal EV tax credit has been made easier to use. Buyers previously had to purchase a qualifying EV and then file for the tax credit on their next tax return. Now, the credit is made available at the point of sale. It’s effectively a discount on the price of the car: buyers can fill out the paperwork when purchasing the car at the dealer, and they (the dealer) submit it to the IRS. This has made the benefit much more accessible and also more immediate. If you prefer, there is still the option to claim the credit in your tax return instead. This article has details about what is required for either method.

In addition to the federal tax credit, numerous local governments have introduced other incentives of their own to encourage EV purchases. Consumers should check out this resource and do their own research to identify the available benefits in their locality. But be careful when pursuing multiple incentives at once: it’s possible that some will not allow you to use them together.

The requirements for EV incentives may seem daunting, but there are resources and information available to help simplify the process. As prices for electric vehicles continue to fall and renewable energy continues to grow, EVs remain a critical tool at our disposal for reducing carbon emissions and slowing down climate change. If you’re ready to make the leap, take advantage of the tools available and make a real dent in the nation’s carbon footprint.

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