New Guidelines Allow Electric Vehicle Buyers to Avail Tax Credits as Point-of-Sale Discounts
In a significant shift, the Internal Revenue Service (IRS) has announced a change in the process of Electric Vehicle (EV) tax credits, allowing buyers to receive up to $7,500 as an instant discount at the point of sale. The updated guidance aims to streamline the process, making the tax credit more accessible for qualifying buyers.
Under the previous system, EV buyers had to wait until tax filing to claim the tax credit, reducing their tax bills by up to $7,500. The revised approach transforms the credit into an immediate discount, impacting the sale price directly.
The IRS and the U.S. Energy Department’s latest guidance outlines that, as of 2024, eligible EV buyers can choose between receiving a federal tax credit of $3,750 or the full $7,500 as a discount during the purchase. To obtain the discount, buyers need to transfer the credit to the dealer, according to IRS guidelines.
The income requirements for 2024, embedded in the Democrats’ $740 billion Inflation Reduction Act, set adjusted gross income limits at $300,000 for married couples filing jointly, $225,000 for heads of households, and $150,000 for other tax filers.
Crucially, the IRS is not mandating dealers to verify the income of EV purchasers. Instead, buyers are expected to self-attest that they meet the specified requirements. The IRS emphasizes that dealers must disclose income limit information to buyers, who, in turn, need to confirm their eligibility for the credit.
To aid dealers in meeting their disclosure obligations, the IRS plans to release a sample disclosure form before January 1, 2024. However, the form is not currently available on the agency’s website.
While the immediate point-of-sale discount program is designed for efficiency, some tax experts express concerns about potential fraud and errors. Scott Hodge, president emeritus of the Tax Foundation, suggests that relying on buyers’ self-verification could lead to mistakes and fraudulent claims, ultimately posing challenges for the IRS in the post-purchase phase.
Despite the anticipated challenges, the new approach aims to simplify the process for EV buyers, encouraging the adoption of electric vehicles by making the federal tax credit more accessible and immediate.