US tax credit scheme for electric vehicles
The Inflation Reduction Act offers a tax credit of up to $7,500 for the purchase of electric vehicles (EVs) in the U.S. The credit is intended to encourage EV sales and reduce greenhouse gas emissions.
However, complex requirements for qualification have raised doubts about whether anyone will be able to claim the full $7,500 credit in the coming year.
Temporary Availability of Full Credit:
- A delay in the Treasury Department’s rules for the new benefit will likely make the full credit available to consumers meeting certain income and price limits for at least the first two months of 2023.
- The new law also offers a smaller credit for the purchase of used EVs.
- To qualify for the credit, new EVs must be made in North America.
- Caps on vehicle prices and buyer incomes are in place to exclude wealthier buyers.
- Starting in March, provisions governing battery components will also come into effect.
- At least 40% of battery minerals must come from North America or a country with a U.S. free trade agreement, or be recycled in North America.
- At least 50% of battery parts must be made or assembled in North America.
- Starting in 2025, battery minerals cannot come from a “foreign entity of concern,” primarily China and Russia.
- Battery parts cannot be sourced from these countries starting in 2024.
- There are also battery size requirements for qualification.
Uncertainty Surrounding Eligible Vehicles:
- It is currently unclear which vehicles will be eligible for the credit due to the many uncertainties surrounding the requirements.
- General Motors and Tesla have the most EVs assembled in North America, and both also manufacture batteries in the U.S.
- However, due to the requirements for where minerals, parts, and batteries must be manufactured, it is likely that buyers of these vehicles will initially only receive half of the tax credit, or $3,750.
- Until the Treasury issues its rules, the requirements governing the sourcing of minerals and parts will be waived, allowing eligible buyers to receive the full $7,500 tax incentive for qualifying models in early 2023.
Availability of Models:
- The Energy Department reports that 29 EV and plug-in models were manufactured in North America for the 2022 and 2023 model years by various automakers.
- However, not all of these vehicle models will qualify for credits due to price limits or battery size requirements.
- New electric sedans cannot have a sticker price above $55,000 to qualify for the credit.
- Pickup trucks, SUVs, and vans cannot be over $80,000.
- This will disqualify two higher-priced Tesla models.
Adjusted Gross Income Limits:
- The full $7,500 credit is available to those with an adjusted gross income of $50,000 or less for single filers, or $100,000 or less for joint filers.
- The credit decreases for those with higher adjusted gross incomes, with the minimum credit being $1,875 for single filers with an adjusted gross income of $75,000 or more, or $3,750 for joint filers with an adjusted gross income of $150,000 or more.
Written by princy