silenced | silenced | Getty Images
The bulk of Americans who buy eligible new electric vehicles are choosing to get an associated tax credit upfront from the auto dealer rather than waiting until tax season, according to new Treasury Department data. a
About 90% of consumers who qualified for the “new clean vehicle” tax credit — worth up to $7,500 — requested their tax credit be issued as a down payment, according to a Treasury Department official who spoke on background.
“It means it's popular,” Ingrid Malmgren, policy director at the nonprofit electric vehicle advocacy group Plug In America, said of the data.
Advance payments are a new optional financial mechanism created by the Inflation Reduction Act, which President Biden signed in 2022.
It allows dealers to offer an upfront discount to qualifying buyers, delivered as a partial payment for electric vehicles, a down payment or a cash payment to consumers. The IRS then compensates the trader.
Not everyone will necessarily qualify for the full $7,500, depending on factors like the type of car purchased.
The down payment started being available on January 1st.
Previously, all EV buyers had to wait until tax season the year following their purchase to claim the tax credits related to that purchase, meaning they could be waiting several months or longer for the tax break.
Additionally, because the clean car credit is non-refundable, households with lower annual tax burdens may not be able to claim the full value of the tax credit on their tax returns. This is not the case with down payments: qualified buyers receive their full value regardless of tax liability.
Down payments are also available to purchase used electric cars. The so-called “clean previously owned vehicle” credit is worth up to $4,000.
Down payments can help with affordability, Malmgren said. For example, the cash advance means families may not need to get money from elsewhere to cover the down payment, she said. It can also reduce the cost of monthly car payments and overall interest charges, she added.
Auto dealers have filed about 100,000 time-of-sale reports for new and used electric vehicles with the IRS since Jan. 1, indicating that a consumer qualifies for a tax break, according to a Treasury Department official.
The Treasury Department has issued more than $580 million in advance payments since January 1, the official said.
“Demand is high four months after implementation of this new provision, with American consumers saving more than half a billion dollars,” Treasury Department spokesman Harris Talwar said in a written statement.
Prepayment warnings
Of course, there are some caveats about down payments. For one thing, not all car dealers are participating yet.
More than 13,000 merchants have so far signed up to the IRS Energy Credits Online portal to facilitate these money transfers for consumers. This number is up from more than 11,000 in early February.
For context, there were 16,839 auto retailers in the United States during the first half of 2023, according to the National Automobile Dealers Association. There are also roughly 60,000 independent auto dealers, though they largely sell used cars, according to 2021 Cox Automotive estimates. Not all of these franchises or independent dealers necessarily sell EVs.
More personal finance:
3 signs it's time to refinance your mortgage
What does Biden's new student loan forgiveness plan mean for your taxes?
Why isn't the Fed in a hurry to cut interest rates in 2024?
Additionally, not all EVs or consumers will be eligible for the tax credit.
The inflation-reducing law includes manufacturing requirements for new electric vehicles — intended to encourage more domestic production — that temporarily limit the models eligible for the full or partial tax credit.
There are 36 new electric vehicle models currently available for tax credit in 2024, according to US Department of Energy data as of March 18.
Manufacturers of these models include Acura, Audi, Cadillac, Chevrolet, Chrysler, Ford, Honda, Jeep, Lincoln, Nissan, Rivian, Tesla, and Volkswagen. Some models qualify for half the tax credit — $3,750 — instead of the full $7,500.
Cars and buyers must meet other requirements as well, which include income limits for households and maximum sticker price limits for an electric vehicle.
Buyers need to sign an affidavit at car dealerships confirming that their annual income does not exceed the specified eligibility limits. Making a mistake generally requires consumers to repay the tax credit to the IRS.
