Proposal to Change EV Tax Credit to Rebate Likely to Benefit Most EV Buyers

No one, except possibly some high-placed Ford executives, knows exactly how much the Ford Focus Electric is going to cost. But no matter what the Focus Electric’s final sticker price, the more consumers can take off that price via tax incentives, the less they’ll have to pay, out of pocket, to drive electric.

That’s why the Obama Administration’s recent announcement that it wants to change the EV Tax Credit, technically called the Qualified Plug-in Electric Drive Motor Vehicle Credit, to a tax rebate is good news.

As it’s being proposed by the Adminstration, an EV tax rebate would put money in consumers’ hands right away, on a dealer’s lot. This would mean that if, for example, the Focus Electric were priced at $34,000 — just a hypothetical at this point, that a buyer receiving a $7,500 tax rebate would pay $26,500 for that car.

This contrasts sharply with the current EV tax credit which will see some consumers wait more than a year before they see their “money”.

Here are a few other reasons why a “point-of-sale” tax rebate on a Focus Electric, or any other mainstream electric vehicle, is something most EV buyers seem likely prefer to the current EV tax credit:

You have to be in a pretty high income bracket to get the full $7,500 credit. According to a tax expert quoted in a Cars.Com story — one of the few we’ve found that addresses the EV tax credit issue in any depth — a married couple would have to make at least $74,300 after a standard deduction and have no other tax credits or dependents to earn the full $7,500 tax credit. A single tax filer would have to earn at least $54,600; a head of household would need to top $66,300.

You must take all of the credit in a single tax year. It’s an all or nothing deal. Either you are able to count the full $7,500 credit against your tax liability in a single year — and it must be for the year in which you purchased your EV — or you are not able to, and you lose the rest of the credit.

With a tax credit, you need to account for other tax credits and deductions you will be taking. In a way, other federal tax credits and deductions, such as those for children, education, mortgage interest, etc. hurt your ability to get the full $7,500 EV tax credit. As you check off these credits and deductions, they — like the federal EV tax credit — count against your total tax liability.

You need to set up your W-4 allowances properly. Once you establish what your anticipated total annual tax liability is for a given tax year, with a tax credit you need to figure out how many allowances to claim on your W-4 in order to ensure that you calibrate, as closely as possible, the amount of money you will owe the IRS at the end of the year in which you buy a Focus Electric to the anticipated total amount of tax credits you want to be able to claim.

Basically, tax credits are far more complicated and potentially more dicey for consumers than tax rebates.

We’re not sure what the chances are that the Obama push to change the EV tax credit to a tax rebate succeed, and it’s not clear what the timetable for change would be, if it does succeeds. However, we are pretty sure that for most EV buyers — whether they’re focusing on a Focus Electric, a Chevy Volt, or maybe both — a tax rebate is very definitely a better deal  than a tax credit.

Additional reading on EVs and tax credits

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8 Responses to Proposal to Change EV Tax Credit to Rebate Likely to Benefit Most EV Buyers

  1. Chipdesigner says:

    I am seriously consideting the purchse of an all-electric vehicle this year, but only if the tax rebate is available.

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  3. HoosierFj says:

    The only problem I see with instant rebates is Dealerships will take advantage of the situation and markup cars several thousands of dollars. Because they can.

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