The Income Cap Catch
The federal EV tax credit offers up to $7,500 to make electric vehicles more affordable. Starting in 2024, dealerships could apply the credit at the point of sale, eliminating the need to wait for a tax refund. However, this convenience comes with strict income limits.
Individual buyers must earn under $150,000, while heads of households and married couples are capped at $225,000 and $300,000, respectively. If your Modified Adjusted Gross Income (MAGI) exceeds these thresholds, you may be required to repay the entire credit when filing your taxes.
Reporting Requirements
Claiming the credit requires filing IRS Form 8936, but dealerships also have reporting responsibilities. While dealerships can process the credit, they don’t verify income eligibility. Buyers must ensure they meet the requirements, as tax professionals warn that some taxpayers won’t realize they’re ineligible until tax season.
For added flexibility, you can use income from the year of purchase or the previous year to qualify. Consulting a tax professional can help avoid costly mistakes.
Leasing as an Alternative
Leasing offers a workaround for buyers who don’t meet the income caps. Leasing companies claim the credit and often pass it to customers as lower monthly payments. However, terms vary, so it’s important to understand the lease agreement if you plan to buy out the vehicle later.
What’s Next for EV Tax Policy?
The EV tax credit has helped accelerate EV adoption but faces political uncertainty. Proposed policy rollbacks could hinder automakers that have invested heavily in U.S. EV production. As the industry evolves, staying informed is crucial for buyers hoping to maximize their savings while avoiding unexpected repayment obligations.
