Incentives

The Clean Vehicle Rebate & Credit: The Updated EV Incentive that Has a Hidden Catch

These days, everyone is feeling the pinch of inflation. In response, the government recently passed the Inflation Reduction Act. Among other changes, it modified the existing Qualified Plug-in Electric Drive Motor Vehicle Rebate and Credit.

Now known as the Clean Vehicle Rebate and Credit, it provides between $2,500 to $7,500 toward the purchase of qualified EVs. While the credit may seem like a simple way to encourage the use of EVs, it’s actually working to accomplish a few different goals.

Expanding Access to EVs

According to the U.S. Department of Energy’s Alternative Fuels Data Center (AFDC), the old federal initiative provided credit for the purchase of a vehicle that had:

• At least four kilowatt-hours (kWh) of capacity,
• An external source of energy to recharge the battery,
• A gross vehicle weight rating of up to 14,000 pounds, and
• Specified emission standards.

However, once a manufacturer sold 200,000 of those eligible EVs in the U.S., the incentive would phase out. The updated Clean Vehicle Credit provides the same credit amounts but with some interesting changes.

The Updated Rebate and Credit in Full Effect

For vehicles purchased between August 17, 2022, through the end of the year, the same 200,000 sales cap and car requirements apply, but a new restriction is added; to qualify for the rebate or credit, the final assembly of the vehicle must be in North America.

Starting in January 2023, the Clean Vehicle Rebate and Credit goes into full effect. It removes the 200,000 sales cap, makes both electric vehicles and fuel cell electric vehicles (FCEVs) eligible for the rebate or credit, and expands to include used vehicles, not just new ones. The tax credit acts as a rebate that can be applied at the point of sale, reducing the total financing costs.

However, it also adds a number of other requirements:

• The kWh capacity of the traction battery must be at least seven,
• Cars must have a manufacturer-suggested retail price (MSRP) of less than $55,000, while vans, sport utility vehicles, and pickup trucks must be less than $80,000,
• Eligible individuals must earn an annual modified adjusted gross income (MAGI) of less than:
  • $300,000 for joint filers
  • $225,000 for head-of-household filers
  • $150,000 for single filers

Finally, a certain percentage of the critical mineral extraction, processing, and recycling, as well as the battery component manufacturing and assembly, must take place in the United States or a U.S. free-trade agreement partner. Each one of these requirements is worth $3,750 in tax credits. So if both the critical mineral and the battery component requirements are met, you’re eligible for the full $7,500 rebate. See more detail, including the varying annual percentages, here.

Consumers can verify the assembly location by referring to the Vehicle Identification Number (VIN) and using the U.S. Department of Transportation’s VIN decoder or by reviewing 

Why the Changes?

These changes were made with a few different long-term goals in mind. The first is obvious: to promote the purchase of EVs and help reduce carbon emissions. According to the U.S. Environmental Protection Agency, the transportation sector makes up more than a quarter of all greenhouse gas emissions. Tackling emissions from cars, trucks, and SUVs is a great way to help curb the nation’s carbon footprint.

The new personal income and MSRP restrictions are geared to ensure that the credit gets into the hands of people who actually need it. Generally speaking, individuals making more than $150,000 per year aren’t going to need this kind of tax credit as much as lower- to middle-income earners. In the same vein, the credit is not intended for people who are purchasing top-of-the-line EVs that cost nearly $60,000 or more.

Another important goal is to encourage EV manufacturers to conduct mineral extraction, processing, and recycling, as well as battery manufacturing and assembly in the United States. Incentivizing EV manufacturers to pursue that “Made in America” stamp of approval would benefit the future of the EV industry in the U.S. and reduce reliance on problematic supply chains and foreign materials and supplies. However, until more EV manufacturers begin meeting this “Made in America” standard, few consumers will be receiving the tax credit.

For those interested in taking advantage of this credit, AFDC has gathered a list of EVs with final assembly in North America.

Find More Information on the Clean Vehicle Rebate or Credit and Other EV Rebates, Tax Incentives, and Grants

Want to learn more about the revised tax credit? Check out this great article from PBS News Hour. They talk with EV researchers and tax experts to get the low-down on the recent changes and why they were made. For additional EV incentives, make sure to visit AFDC’s laws and incentives database. There are a lot of different state and federal options to help get you and your family into your first (or second) EV. For the latest info on sustainable products, green energy tech, and other content on eco-conscious living, subscribe to eveelife.com and follow us on Facebook and Instagram.