Treasury Department aims to make it easier to get $7,500 EV tax credit in 2024 (2024)

A new proposal by the U.S. Department of the Treasury would make it easier for consumers to get a tax credit when buying a new or used electric vehicle, according to tax and energy experts.

Its proposed rules, issued Friday, would let car dealers offer the EV tax break to consumers at the point of sale — regardless of their federal tax liability — starting Jan. 1, 2024.

What that means: All eligible EV buyers — and not just a subset of eligible, typically wealthier consumers — would get an upfront discount of up to $7,500 for new cars and $4,000 for used cars, experts said.

More from Personal Finance:
Why now is the time to 'think long-term' when investing
Here's why so many workers are striking in 2023
What to know about the Israel-Hamas war and oil prices

"I think it is a real game-changer for all consumers to be able to get that rebate at the point of sale," said Jamie Wickett, a partner at law firm Hogan Lovells which specializes in federal tax policy and energy. "Immediately, a $50,000 vehicle becomes $42,500."

Dealers were always supposed to offer point-of-sale discounts in 2024, as per text of the Inflation Reduction Act. However, the tax-liability issue was an open question.

As things stand, buyers only qualify for the full tax break if their federal tax liability is large enough. Otherwise, they may get a reduced credit or nothing at all. (That's because the credit is "nonrefundable.")

If the Treasury proposal is codified, it would expand the pool of consumers — especially lower earners, who generally have smaller tax liabilities — eligible for the full value of the EV tax credit.

"It's great news, especially from an equity standpoint and for people who may not have as much disposable income," said Ingrid Malmgren, policy director at nonprofit Plug In America. "It really will make [an EV purchase] more affordable for them."

They would also be getting that tax break as an upfront discount. Right now, buyers must wait until they file their annual tax return to get the credit's financial benefit — potentially a year or more after the purchase.

Consumers will get that point-of-sale discount by transferring their tax credit — the new clean vehicle credit ($7,500) or the used clean vehicle credit ($4,000) — to a car dealer. The car dealer can then pay the credit's value back to the consumer. The IRS expects to issue payments back to the dealers within 72 hours, Treasury said.

Dealers must provide consumers with the full credit amount available for the vehicle, and provide written confirmation of the amount and vehicle eligibility, Treasury said. The payment doesn't count toward a taxpayer's gross income.

The agency's proposal comes as it has gotten harder for many EV models to qualify for the full $7,500 credit (temporarily, at least) due to manufacturing requirements included in the Inflation Reduction Act.

There are a few caveats.

For one, the Treasury proposal is subject to a 60-day public comment period and may change in its final version, though experts don't expect any substantial revisions.

In addition, not all dealers will necessarily participate. They must register via IRS Energy Credits Online, a new website. Wickett expects most dealers to do so, or otherwise risk being at a "real competitive disadvantage."

Buyers also must file an income tax return for the year in which the vehicle transfer election is made.

It's also important to note that car dealers won't analyze consumers' income to determine if they qualify for an EV credit, according to the Treasury proposal. Buyers must self-attest their eligibility — and making a mistake could mean paying back the credit's full value to the IRS at tax time.

They can self-attest their eligibility if they expect to be below the respective income thresholds in the year the vehicle is "placed in service," Treasury said. They can also do so based on the prior year's income.

"It's probably best to know you qualified [based on income] last year or be very much assured that you qualify in the year you purchase your car," Malmgren said.

These are the annual income limits for the $7,500 new vehicle credit: $300,000 for married couples filing a joint tax return; $225,000 for heads of household; and $150,000 for single tax filers.

These limits apply to the $4,000 used vehicle credit: $150,000 for married couples filing a joint tax return; $112,500 for heads of household; and $75,000 for single tax filers.

These figures are based on "modified adjusted gross income."