If you are interested in purchasing an Electric Vehicle (EV) either now or in the future, there is a good chance you could receive a tax credit with your purchase, but there are some caveats from both sides (you and the car manufacturer) to be eligible. Previously, many manufacturers of EVs were provided tax credits by the government to entice first time buyers to pull the trigger on their first Electric Vehicle. This credit topped out at $7,500 to lower the cost of purchasing a new EV, and the updated provisions to this credit still can reach this $7,500 threshold, but it will require 2 targets from the manufacturers side to reach that number. Let’s look at the language changes in this incentive to make sure that the EV you end up buying allows you to use these additional savings.
EV Tax Credit
What Has Changed?
The government enacted the Inflation Reduction Act of 2022, which has many parts with an end goal to help stimulate the economy in times of economic stagnation in the US. One of the major parts that people have paid attention to from this act is the changes involving plug-in fully electric automobiles. The overarching goal of this act is to make sure American companies and workers are making money from the government investments, so they changed the language of the credit (and changed the name from the Qualified Plug-in Electric Drive Motor Vehicle Credit to the Clean Vehicle Credit, aka the CVC) to state that final assembly of these EVs must be in the United States. This part of the plan went into effect on August 17th, 2022, and it seems as though this will continue through the life of this incentive program. The other changes to the requirements of this tax credit involve the composition of the battery of the Electric Vehicles. Starting on January 1st, 2023, there was a tiered system added to the language stating where the battery materials are required to be sourced from and where they are required to be manufactured (with an affinity to the US, but also including fair trade agreement companies with the US, such as Canada and Australia). Each requisite requirement is accompanied by a tax credit of $3,750, and if both requirements are met then the buyer of an EV will still enjoy the same $7,500 credit that previous buyers have earned.
What Are The Numbers Needed From The Manufacturer For The Credit?
As stated previously in this article, there are two separate requirements to meet the tax credit incentive, the first being sourcing location of critical minerals (by percentage) of the EV battery, and the second being the assembly location of components (by percentage) of the EV battery to receive the $3,750 CVC for each. The critical minerals stipulation is fairly straightforward, the more a battery's raw materials (x. Lithium, Cobalt, Nickel, etc. depending on the batteries structure) are sourced from the US or other countries with US fair trade agreements, the better position a manufacturer is in now and in the future to be able to qualify for the incentivized credit. The numbers for each year (from 2023 and on) in terms of battery composition to meet the standard are listed in the chart below:
The second part, which pertains to the location of battery components manufacturing, is structured very similarly, and if the specification is met, will add another $3,750 tax credit. These numbers in the chart below dictate which year and how much of the EV batteries composition is required to be manufactured in the US to receive the federal tax credit:
While you are not the one producing these vehicles, it is good to know where your desired EV manufacturer is producing their vehicles. This is especially true when it comes to purchasing, because if you are planning on buying an EV now or in the distant future, whichever brand you buy from will dictate the incentive you receive depending on where they source from and build that vehicle (whether it be $7,500, $3,750, or nothing).
Are There Any Other Requirements?
Yes, there are a few more stipulations regarding the eligibility to receive the CVC, both from the side of the manufacturer and from the consumer. Manufacturers also have another guideline to follow, and it involves how they price their vehicle. If their EV is listed as a van, sport utility vehicle, or pickup truck, then the manufacturer suggested retail price (MSRP) cannot be higher than $80,000 to offer the CVC with the purchase of their vehicle. All other classified EVs are required to have an MSRP below $55,000 to receive the credit. On the buyers’ side, the stipulations are thresholds for income (which they state as modified adjusted gross income or MAGI) that state the buyer's income needs to be below that required tax designation to qualify for the CVC. These income values are listed in the chart below:
What Else Do You Need to Know?
There is obviously a plethora of knowledge out there about EVs and the tax breaks they can provide. If you are buying for yourself (or your company), make sure to ask your dealer about all of the current incentives so that you can save the most on the EV you are purchasing. Also make sure to check out if your state government or power company offers any rebates, as you could also save on an EVSE (electrical vehicle supply equipment, aka a charging station) for your home or workplace to charge your new EV.