Here’s how car dealers will pass on the $7,500 EV tax credit next year

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The beginning of this year saw a big change to the federal tax incentives applied to electric vehicles, altering which cars were eligible. And from next year, another change is coming, one that we think is long overdue. From January 1, 2024, you'll be able to have the amount of the credit applied immediately to the car's price at purchase rather than waiting until tax time.

The original IRS section 30D tax credit, meant to spur the adoption of plug-in vehicles, was tied to the storage capacity of a car's battery pack. But from this year, the $7,500 credit is now linked to domestic battery manufacturing rather than just battery capacity, with annually escalating percentages of the battery required to come from the US or a country with a free trade agreement in order to qualify.

The changes to the credit—which were made under 2022's Inflation Reduction Act—also address several problems with the old scheme. A $4,000 credit (IRS section 25E) was created for buyers of used EVs, and there are now income and price caps to address criticisms that the credit merely subsidized those wealthy enough not to need it.