How the Proposed 2021 EV (Electric Vehicle) Tax Credit Works

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Electric vehicles & Solar

Taxes can be difficult to understand even at the best of times — just ask half of Americans each April. Even companies can have difficulties with taxes, which is why the Senate Finance Committee is trying to simplify the process for  EVs through the Clean Energy and Sustainability Accelerator Act. Below are the basics of this proposed act’s  EV tax credit and what it means for Americans.

What the Existing EV Tax Credit Entails

As it currently stands, Americans can receive up to a $7,500 federal tax credit when they purchase an electric vehicle. Note that we say up to because if your taxes end up below that $7,500 mark, you won’t get the full value. There is no rollover or refund that will be issued if you owe less than $7,500 in taxes. Additionally, some EVs may not qualify for a full tax credit depending on the size of their battery. This means that a hybrid receives a lower credit than a fully electric vehicle. Finally, the tax credit for buyers phased out once the manufacturer had produced 200,000 EVs. Now, what are the potential changes?

Changes to the EV Tax Credit

The impending changes to the EV tax credit are meant to further push sales of EVs to stimulate the American economy and help the environment. These changes, while beginning on the federal legislative level, also consider state-level incentives. For example, Nevada policymakers are working to offer car dealerships incentives for the purchasing of EVs. Updates to the EV tax credit incentivize American production while also pushing for cleaner emissions. 

Who (and What) Qualifies for the EV Tax Credit?

While the Clean Energy for America Act proposes a number of upgrades to credits for EVs, many of these upgrades aren’t apparent, which is why we simplify the impending changes below.

Extending Current EV Tax Credit Caps

It maintains the current $7,500 tax credit for EVs, which was previously in danger of phasing out as more EVs were sold. Instead of having the tax credit vanish once vehicle manufacturers sold 200,000 vehicles, the updated credit proposes a phaseout over 3 years once 50 percent of passenger vehicles sold in America are electric. This is good for Tesla and General Motors, both of which have already reached 200,000 caps.

Luxury EVs? Not on Policymakers’ Watch!

The new EV tax credit wouldn’t apply to vehicles sold for more than $80,000. A common charge against EVs is that they’re just toys for the rich — that they don’t benefit the average American. This portion of the proposed changes to the EV tax credit not only incentivizes vehicle manufacturers to engineer EVs at lower costs, but also reminds consumers that reducing carbon footprints is a social responsibility possible for people of all social strata, and isn’t just a luxury of the rich. Battery prices for EVs are continually declining. In fact, a battery now costs almost a tenth of what it did in 2010. As the prices of batteries keep falling, so do the prices for EVs. This is critical, as battery prices are one of the key factors in the overall price of an EV. By 2023, an electric vehicle could cost the same as its gas-powered cousins. This is why the tax credit would not apply to vehicles over $80,000. Soon that price range will be the sole domain of luxury vehicles.

Incentivizing American Made EV Production

In maintaining the theme of making the EV tax credit’s benefits accessible to all Americans, the Senate Finance Committee ensured that the best value for the tax credit comes from supporting American jobs. President Biden recently urged that EV production be focused in America, and legislators listened. If the EV is manufactured in the U.S., it qualifies for an additional $2,500 consumer tax credit. Additionally, if the EV  manufactured in America is built with union labor — or by laborers represented by a union — the vehicle will qualify for an additional $2,500 tax credit on top of the previous one. This means that union-made, American EVs have a potential credit of $12,500.

Other Clean Energy Incentives

Finally, there are a few more incentives contained in the Clean Energy and Sustainability Accelerator Act. Previously, production facilities that produced up to 300g of CO2 per kWh were given a modified credit. However, in the new version of the bill, only facilities with zero emissions, or net negative emissions, would qualify for a credit. Clean fuel producers that make fuel 25 percent cleaner than the American average also qualify for a credit. The EV tax refund would also become renewable for buyers, which could mean cash in your pocket!

What These Proposed EV Incentives Mean for Consumers

Like solar panels, this means savings. A refundable tax credit of this size is sure to make it easier for the average American to purchase an electric vehicle. Getting lower fuel prices for going electric with vehicles is sure to add up. It also means supporting American jobs. Traditional vehicle companies have been outsourcing for years. However, with the Clean Energy for America Act, that trend should reverse for electric vehicles. The incentives are too alluring and the savings too strong. If the Clean Energy for America Act passes, then purchasing an EV will become one of the most patriotic things you can do. Another good way to ensure that the benefits from EVs impact all Americans is to take your home solar. By powering your EV with solar, you remove the dirty, oil-based fuels from your car while also removing the coal-fired power from your home — and, by extension, from your new EV.

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