The IRS will begin enforcing strict battery-sourcing requirements for electric vehicles after April 18, 2023, the US Treasury says in long-awaited guidance released today.
These guidelines were supposed to be released by the end of 2022, causing some confusion among potential 2023 EV buyers who were left wondering if their new car would qualify for the full tax credit. Here's what the IRS has to say.
Those who purchase an EV on or after April 18, 2023, can only claim the EV credit on their 2023 taxes if their vehicle's battery contains at least 40% of its minerals sourced from North America or a free trade partner (like Japan), and 50% of battery components sourced from North America.
"A vehicle meeting neither requirement will not be eligible for a credit, a vehicle meeting only one requirement may be eligible for a $3,750 credit, and a vehicle meeting both requirements may be eligible for the full $7,500 credit," according to a Friday IRS update (see Q6).
The IRS also confirmed all other terms currently in place still apply:
- The vehicle must be assembled in North America.
- It must be priced under $55,000 for a sedan and $80,000 for an SUV.
- Buyer income must be under certain caps: $150,000 for individuals, $225,000 for head of household, and $300,000 for married or jointly filing.
Of all the requirements, the battery-sourcing additions are considered by automakers to be a main bottleneck for tax credit eligibility. Domestic assembly is also required, which rules out foreign automakers, such as Kia and Hyundai, that manufacture abroad. But the Biden administration backs this approach to encourage domestic manufacturing and move away from relying so much on China for materials.
Sen. Joe Manchin, a Democrat from West Virginia, has been an ardent supporter of the policy. He even threatened to sue the Biden administration for not enforcing the battery requirements earlier in 2023, S&P Global reports.
Today, Manchin said the guidance "continues to ignore the purpose of the law, which is to bring manufacturing back to America and ensure we have reliable and secure supply chains.
"American tax dollars should not be used to support manufacturing jobs overseas," Manchin adds, a reference to the free trade provision, which may eventually include the EU as well as Japan. "It is a pathetic excuse to spend more taxpayer dollars as quickly as possible and further cedes control to the Chinese Communist Party in the process."
Manchin notes that the guidance includes a 60-day comment period. "I ask for every American to comment. My comment is simple: stop this now—just follow the law."
Critics of the policy say such strict requirements may slow electric vehicle adoption. The battery-sourcing percentages get harder to meet each year, increasing up to 80% for the minerals by 2027 and 100% for components by 2029.
Automakers like Tesla were aware the Treasury guidance could change their vehicles' tax credit eligibility overnight once the guidance was officially released. Treasury says it will update (and potentially shorten) its list of qualifying vehicles on FuelEconomy.gov. on April 17 after working with automakers to validate their supply chain.
Buy Now to Get the Credit?
If you're definitely in the market for an EV and are concerned your pick may become ineligible for a full credit next month, consider buying one off the lot in the next two weeks. The Chevrolet Bolt EV, Chevrolet Bolt EUV, or Nissan Leaf currently qualify and are sold at dealers. But beware of dealers taking advantage of the tight timeline and marking up the price.
Meanwhile, signing on the dotted line is not enough; you have to actually take possession of your new EV before April 18 to qualify. So keep that in mind if you're placing an order online for a car with a wait time of a few weeks or months, like a Tesla, Ford Mustang Mach-E, or Rivian.
Used EVs are another option, as domestic assembly does not apply and the terms will not change after April 18. "Pre-owned all-electric, plug-in hybrid, and fuel cell electric cars purchased on or after January 1, 2023, may be eligible for a federal income tax credit," according to the US Department of Energy. "The credit equals 30% percent of the sale price up to a maximum credit of $4,000." See full list of qualifying used EVs, PHEVs, and FCVs here.