While the cost of EVs has steadily fallen, and although they save consumers money in the long-run, they remain more expensive to buy than their gas-powered counterparts. High upfront costs present a major barrier for individuals thinking about going electric. To incentivize the purchase of these clean cars, the federal government has provided a tax credit of up to $7,500 for the purchase of a plug-in hybrid or fully electric vehicle for more than 10 years.
This essential credit was set to expire at the end of 2021, but once the Build Back Better Act passes the Senate, it will be extended for another decade.
Even better, the credit is now stronger than ever: The maximum credit has been increased, made fully refundable and available at point of sale, applied to used electric vehicles and manufacturing quotas have been lifted.
Let me break down why these advances are so important.
Fully refundable credit, available at point of sale: In the past, EV tax credits were limited by tax liability. So, even if you qualified for the full $7,500 credit, the maximum you could receive was what you owed in income taxes. You’d also have to wait around until tax season to actually get your money back. Now, no matter what you owe on your taxes, you are guaranteed to receive the full credit. If it exceeds your liability, you’ll be sent a check to make up the difference. Even better, you can now elect to have the credit applied at the point of sale so you can directly take thousands of dollars off the sticker price of your new electric car. According to Rhodium, the refundable tax credits would make the total cost to own an electric vehicle as much as 16 percent less expensive than the average gas vehicle. These changes will greatly increase the accessibility of EVs for low- and middle-income consumers that previously didn’t have high enough tax liability to qualify or couldn't afford to wait for their rebate check.
Used EV tax credit: Up to $4,000 can now be applied to the purchase of previously owned electric vehicles. As EV adoption has boomed over the past decade, we’re now seeing the emergence of the used EV market. Making these used electric cars easier to buy is essential to expanding access to low- and middle-income consumers and accelerating widespread adoption of these clean vehicles.
Increased maximum credit and lifted manufacturing quotas: Before, the maximum EV credit was $7,500. However, if you wanted to buy a Tesla or GM vehicle, that credit was $0. That’s because these manufacturers had exceeded a 200,000 EV sales quota that limited consumers from applying the credit to those purchases. Now, no matter what company you're buying from, you can receive a base amount of $7,500 for buying a fully electric car. And it doesn’t stop there: The maximum credit is now $12,500, with the extra $5,000 applied if your car is union-made in the U.S. using domestic supplies.