Electric Car Tax Credits

By Jim Gorzelany, Contributer, Forbes.com

One-time federal tax credits of between $3,500 and $7,500 were enacted in 2010 to help spur sales of plug-in vehicles, which was then a priority for the Obama administration. The incentives helped the industry register sales of 34,000 electrified rides over the first 10 months of 2018, according to InsideEVs.com, which represents a 58% boost over the same period in 2017.

But the credits are not permanent, and are scheduled to phase out during the calendar year after an automaker sells 200,000 full electric (EV) and/or plug-in hybrid (PHEV) vehicles.

Tesla has already reached that milestone, which means that buyers who take delivery of a Model S, Model X or Model 3 after December 31 won’t receive the full amount. The federal tax credit on Tesla models drops to $3,750 for vehicles sold between January 1 and June 30, 2019. It will then be reduced to $1,875 for units sold beginning July 1, 2019, and will be eliminated altogether on December 31, 2019.

General Motors is expected to be the next automaker to reach 200,000 total EV/PHEV sales, and it should happen sometime during 2019. That would mean the federal tax break for the Chevrolet Bolt EV, Cadillac CTS PHEV and Chevrolet Volt models would phase out beginning on January 1, 2020.

Critics argue that eliminating the tax credit based on sales essentially penalizes automakers that were at the forefront of EV development and invested heavily in the technology early in the game. Not surprisingly, GM and Tesla have lobbied Congress to extend the federal tax credits, with bills both for and against the electric vehicle tax credits being subsequently proposed.

Representative Peter Welch, a Democrat from Vermont who was just re-elected for another term, introduced a bill back in July that would replace the current sales-based system and enable a tax break for all electric vehicle buyers for the next 10 years. It would also swap the current tax credit for a direct rebate from the government. As it stands, buyers have to file with the IRS along with their annual income tax forms in the year after buying an EV or PHEV to receive the credit. Those who pay less than the credit amount in taxes wind up losing a portion of it.

Robert Martin