Accelerating The Plug-in Electric Vehicle Tax Credit In The US

APR 9 2015 BY BARRY BRENTS 22

Even though the Qualifying New Plug-in Electric Vehicle Tax Credit (the ‘EV Credit’) can’t be claimed on a tax return until the year after an electric vehicle is purchased, some buyers of qualifying vehicles may still be able to get the benefit of the credit this year and even use the EV credit to help them purchase a new electric vehicle.

Find out how to increase cash flow by amending IRS Form W-4 to account for the EV Credit, and in some cases effectively lower or completely erase car payments for the rest of the year.

w-4 disclaimerAbout the EV Credit

Congress enacted the EV Credit to make electric vehicles cost competitive with comparable conventional vehicles. The credit is only available to purchasers of new electric vehicles and it ranges from $2,500 to $7,500 depending on the vehicle’s battery size. Examples of 2015 models that qualify for the credit are shown below with a complete listing available on the IRS website.

Applicable EV Credit Amounts (at time of press)

Applicable EV Credit Amounts (at time of press)

Confirm Tax Liability to Claim the Tax Credit

Taxpayers shouldn’t assume they will be able to claim the entire EV Credit on their tax return. Taxpayers can only claim the credit to the extent of their income tax liability for the year of purchase. If a purchaser’s tax liability falls below the available EV Credit amount for that year, any excess unused credit amount may be permanently lost.

business tipMany taxpayers can use the IRS on-line Withholding Calculator to estimate whether they will have enough tax liability to claim the EV Credit in a given year. Taxpayers with sufficient tax liability can claim the credit on Form 8936 attached it to their U.S. income tax return.

claiming tipAccelerating the Credit

Taxpayers who plan to purchase a new qualifying EV and claim the EV Credit on their tax return may be able to use their anticipated credit to increase their cash flow in the year of purchase. If the taxpayer earns salary or wage income and has not inflated the number of withholding allowances claimed on IRS Form W-4, claiming additional W-4 allowances can increase take-home pay and make extra cash available for car payments for the remainder of the year.

The Matching Principle

The IRS encourages taxpayers to make this W-4 adjustment to ensure that tax withholding corresponds to anticipated tax liability. Absent any adjustment most taxpayers claiming the EV Credit on their tax return can wind up having taxes over-withheld by their employer. By converting their EV Credit into additional withholding allowances on their W-4, those taxpayers bring their tax withholding and tax liability into balance.

Finding the Optimal Number of Withholding Allowances

Most taxpayers can use the IRS on-line Withholding Calculator to determine how many additional W-4 allowances are necessary to make tax withholding match tax liability for the year. With this IRS tool, taxpayers simply submit financial and tax information, specify the amount of the EV Credit they plan to claim, and the Calculator will tell them how many allowances are needed on an amended W-4 to ensure the credit does not result in over-withheld taxes.

Calculating the New Tax Withholding Amount

Taxpayers can also use IRS Publication 505 to calculate the optimal number of withholding although this approach takes a little more work. Publication 505 provides tables and worksheets taxpayers can use to convert their EV Credits into the appropriate number of withholding allowances based on the taxpayer’s filing status.

cautionHow to Amend the W-4

Most employers allow employees to amend their W-4 withholding allowances electronically. Otherwise, taxpayers can amend their W-4 by visiting the IRS website, downloading a current version of the form, and submitting the completed form to their employer. Employers that receive an amended W-4 must put the new withholding allowances into effect no later than the first payroll period that begins after a 30 day grace period.

Re-Adjustments May Be Required

Taxpayers who adjust their W-4 to claim the EV Credit should remember to re-adjust their W-4 at the end of the tax year or if, at any point during the year their personal or financial situation changes in a way that could impact their tax liability (e.g., job loss, marriage, new job, etc.). Otherwise, a taxpayer could inadvertently under-withhold taxes and could even trigger penalties if the under-withholding is less than 90% of the tax due for the year.

Always Consult Your CPA

Always Consult Your CPA

Available State Incentives

In additional to the EV Credit, purchasers should also investigate whether any other federal, state and local incentives are available for the purchase or lease of an electric vehicle or an electric vehicle charger. Regional, local and utility rebates may also be available as well as other incentives such as single-driver access to high occupancy vehicle lanes and toll rate reductions.

When added to the federal income tax credit the total package of available incentives can make a compelling case to buy a new electric vehicle.

Editor’s Note: Our thanks to Mr. Brents for his extensive knowledge of the federal tax credit .  Barry is a tax attorney in the Bay Area.  He also maintains the website – PlugIncentives.com, where he tracks incentives around the country for light-duty electric vehicles and EV charging stations. 

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22 Comments on "Accelerating The Plug-in Electric Vehicle Tax Credit In The US"

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So if you buy a previously regustered dealer “demo” with 5000 miles you are out of luck? It seems that it should be allowed if no one had claimed any of the incentives yet, and you are the first owner after the dealership.But demos are considered “used” and not new, so I wonder if there is any way around it. The local dealership has an 8 month old loaner i3 for sale. $9000 off msrp, but with no incentives, might as well buy brand new. But if no one has claimed incentives…shouldn’t it still be allowed?

Not everyone has a large income – causing the tax liability. The $9 off serves someone who makes maybe $30-40K a year but wants electric. Including retired folks who may have big investments and very little actual income.

I believe many of these “demo” or inventory cars aren’t actually registered or titled and often do qualify as you are the original title holder/registration of the vehicle.

My dealer demo qualified. It was never titled by the dealer so it qualified.

If the dealership actually registered it, wouldn’t they get the credit? If yes, then factor the rebate the dealer received into your price negotiations. Don’t expect the dealer to voluntarily disclose that they received the credit.

Where’s the LEAF on the list?

FYI: The current Volt will cease production this Summer, to clear out the backlog, and resume production of the 2016 model year in September.

If not enough federal tax liability – just move your IRA to a ROTH and create some tax liability that will pay off every year!

Ah, thanks. I just might do that moving some monies from a traditional to a roth ira, thus creating a tax liability.

Thanks that actually a good idea. will consider it.

When I bought my Leaf, Nissan took the $7500 Federal subsidy off the top. This meant I didn’t have to worry about qualifying.

This approach was a major incentive for me to buy the car (lease, actually). If I had doubt about qualifying, I wouldn’t have gotten the car.

Thanks, “Murrysville EV”. I was just gonna point out that some (many?) car dealers are already doing that. Overall, I think traditional car dealerships are a negative thing for the customer, but they do offer -some- benefits.

Nissan dealership did the same thing on my 2012 Leaf lease.

If the dealer can provide the MSO (Manufactures Statement of Origin) the vehicle can qualify for the tax credit. No MSO no tax credit. Be careful with demo’s.

Dealership said they definitely didnt take any rebates. However it is titled under dealership name when it was a loan car.

Barry, you should cover the CP11 and CP12 notices the IRS is sending after modifying (reducing) refunds from EV purchases. It has been a headache but I will get the credit I am legally owed. There are threads on the Volt forums if you need a place to start researching.

Awesome post!

Remember when changing back the W-4 at the end of the year to ask your human resources when you need to change it by. My folks said I would need to submit my changes by the end of November, but they might be slow…. YMMV.

BARRY LET’S STICK TO THE FACTS HERE BEFORE FOLKS LOSS THEIR EV TAX CREDIT CAUSE THEY FAILED TO CLAIM IT IN THE YEAR THE EV WAS PURCHASED ( you say IN YOUR OPENING SENTENCE “Even though the Qualifying New Plug-in Electric Vehicle Tax Credit (the ‘EV Credit’) can’t be claimed on a tax return until the year after an electric vehicle is purchased….”) WHERE DOES IT SAY IN THE TAX CODE THAT THE EV CREDIT CAN’T BE CLAIMED UNTIL THE YEAR AFTER PURCHASE?

The following excerpt are instructions from the IRS form 8936:

The following requirements must be met to qualify for the credit:

• You are the owner of the vehicle. If the vehicle is leased,only the lessor and not the lessee, is entitled to the credit;

• You placed the vehicle in service during your tax year; (nothing here about it being placed in service the previous year)

• The vehicle is manufactured primarily for use on public streets, roads, and highways;

• The original use of the vehicle began with you;

• You acquired the vehicle for use or to lease to others, and not for resale; and

• You use the vehicle primarily in the United States.

http://www.irs.gov/pub/irs-pdf/f8936.pdf

Boy, I sure am happy to be using tax money to help someone buy a car that lists for $845,000.

It just wasn’t enough to help people buy Teslas and i8s that top out at a measly $150k or so, no sir! I’m sure the people buying those Porsche 918s just couldn’t manage to come up with that last $3,667; Why, they might have to stand on street corners (by ‘they’, I mean someone they’d hired) holding gem-encrusted cardboard signs (made by Gucci) reading “Spare Franklins?” My heart bleeds for them, truly it does. Shouldn’t the government be doing more to help these poor unfortunates, rather than wasting money on say food stamps or school lunches?