2024 EV tax credit: What you need to know

In November 2023, the IRS announced the latest advancements of the 2024 electric vehicle (EV) tax credit that allow consumers to directly transfer the credit to the dealership at point-of-sale for an EV or plug-in hybrid electric vehicle (PHEV).

Utilizing the IRS’ new Energy Credits Online portal, dealerships can register to receive IRS payments in advance of using the tool to submit transaction data from EV and PHEV sales starting January 2024. When submitted, the online tool will assess the vehicle’s eligibility for credit and give the consumer the option to transfer the credit to the dealer or not. This means that consumers can receive immediate credit, reducing the upfront cost of a new EV by up to $7,500, or $4,000 for a used EV or PHEV.

2024 EV tax credit eligibility qualifications include:

• Income requirements: For new car purchases, single filers cannot exceed a gross income of $150,000, married-joint filers cannot exceed $300,000, and head-of-household cannot exceed $225,000. For used car purchases, single filers cannot exceed a gross income of $75,000, married-joint filers cannot exceed 150,000, and head-of-household cannot exceed $112,500.
• Battery assembly and critical mineral requirements: As of 2023, 50% of the EV battery must be assembled and manufactured in the U.S., while 40% of the critical minerals must be extracted or processed in the U.S. This percentage increases by 10% through 2029 for battery assembly and 2027 for critical mineral requirements.
• Vehicle MSRP requirements: Eligible vehicles must have an MSRP that doesn’t exceed $55,000 for passenger vehicles (sedan, hatchback, wagons, coupes, etc.) and $80,000 for vans, SUVs and pickup trucks.

2024 EV tax credit: Benefits for drivers and auto dealerships alike

Given that a primary challenge of mass EV adoption is the price of the vehicle, this provision of the Inflation Reduction Act will help increase access to EVs by lowering the vehicle’s upfront purchase price and subsequent payments. Additionally, auto dealerships can increase their EV and PHEV sales and revenue at a time when they’re tackling an oversupply of EVs, and obtain direct payments for selling clean energy vehicles to consumers. Increased EV sales can enable automakers to hit their sustainability targets as well. For example, Hyundai has set a goal to sell 2 million electric vehicles annually by 2030, with other automakers following suit.

What is the EV tax credit?

Introduced as the Energy Policy Act of 2005 to encourage the adoption of alternative fuel vehicles, the policy helped increase the desirability of hybrids like the Toyota Prius, Honda Insight and the Ford Escape by providing a $3,400 tax credit. The 2009 American Recovery and Reinvestment Act expanded the credit to include EVs and PHEVs with a credit up to $7,500. This incentivized automakers to produce some of the iconic first generation EVs such as the Nissan LEAF, Tesla Roadster and Tesla Model S, bringing the initial wave of clean vehicle alternatives to American consumers.

How does the tax credit work?

An EV tax credit is different than a rebate - it would take until the upcoming tax season to take advantage of the $7,500 of a consumer’s taxes. Even then, you would only get a reduction on however much your tax bill was. For example, if your tax bill after February was only $3,000, you would only get $3,000 of that tax credit back. The new rules make the 2024 EV tax credit at point-of-sale more like a rebate, being able to immediately reduce the cost of the vehicle and getting more EVs and PHEVs on the roads.

2022-now: New rules, more EVs

The passing of the Inflation Reduction Act of 2022 was a major win for clean transportation reducing some of the manufacturers’ bottlenecks in expanding electrification and increasing access to tax credits. Beginning in 2023, manufacturers could apply EV tax credits to an unlimited amount of their North American-manufactured electric vehicles and plug-in hybrids, playing no small role in EV sales totaling over 873,000 by September 2023. Opening EV tax credits to more vehicles puts the clean vehicle market on track to surpass 1 million battery electric vehicles sold by the end of 2023.

By allowing consumers to utilize the tax credit at the point-of-sale starting in 2024, the IRS is doing its part to drive sales at dealerships while tackling the high upfront costs car shoppers face when attempting to transition to clean vehicles.