Dealers to be reimbursed for EV credit transfers within 3 days, Treasury says

WASHINGTON — U.S. car dealers applying federal tax credits to eligible new and used electric vehicle purchases at the point of sale next year can expect to be reimbursed within 72 hours, the U.S. Treasury Department said Friday.

The reimbursement time frame was part of a handful of new guidance proposed by the Treasury and IRS to provide dealers with additional information on registration requirements and how the mechanics of the credit transfer will work.

Starting in 2024, eligible EV buyers will be able to transfer federal tax credits to dealers and use those funds as a down payment. The credit transfer is allowed under the Inflation Reduction Act's Section 30D credit for new EV purchases and Section 25E credit for used EVs, providing consumers with up to $7,500 for new vehicles and $4,000 for used if certain requirements are met.

Several dealers told Automotive News last month they were concerned about how seamlessly the process will play out on their showroom floors and how soon they would be reimbursed by the government.

This month, dealers will be able to register via a website called IRS Energy Credits Online. Starting Jan. 1, those dealers will be able to electronically submit EV sales information to the IRS and receive payments for transferred credits. Dealers must be registered via the online portal for their customers to claim or transfer the credit.

Dealers also will use the portal to submit time-of-sale reports, which confirm a vehicle's eligibility for a credit regardless of whether the buyer transfers it to the dealer.

If a credit is transferred at the point of sale, dealers can reduce the purchase price or provide cash to the buyer. However, the amount provided must equal the full amount of the credit available for the eligible vehicle.

Dealers will give buyers certain required disclosures as part of the credit transfer and electronic time-of-sale submission process, including written confirmation of a vehicle's eligibility and the credit amount.

"For the first time, the Inflation Reduction Act allows consumers to reduce the upfront cost of a clean vehicle, expanding consumer choices and helping car dealers expand their businesses," said Laurel Blatchford, the law's chief implementation officer. "The IRS has focused on streamlining this process for car dealers as part of its commitment to improving service and helping taxpayers claim the credits they are eligible for."

Vehicle buyers would have to repay the full value of a transferred tax credit to the IRS when filing their taxes if they exceeded the income thresholds and received a credit.

For new EV purchases, an eligible buyer's modified adjusted gross income cannot exceed $300,000 for joint filers; $225,000 for a head of household; or $150,000 for single filers. For used EV purchases, a buyer's modified adjusted gross income cannot exceed $150,000 for joint filers; $112,500 for head of household; or $75,000 for single filers.

The Treasury said it has included safeguards to help prevent fraud or abuse, such as collecting dealer information during the registration process to ensure only verified, tax-compliant dealers can receive payments from the IRS and only eligible EVs can get the credit.

Under the proposed rules issued Friday, credit transfers and IRS payments to dealers would "generally not affect dealers' tax liability."

"Payment of the value of the transferred credit by the dealer to the consumer would be treated as repaid by the consumer to the dealer as part of the purchase price of the vehicle, and therefore be treated as an amount realized by the dealer," the Treasury said.

Advance payments received by the dealer from the IRS also would not be counted toward the gross income of the dealer, according to the guidance.

Additional information, including fact sheets and updated FAQs, will be released before Dec. 31.

“These are positive developments and aligned with two major priorities that NADA stressed to Treasury would be needed for successful implementation of the clean vehicle tax credit program in the showroom,” Mike Stanton, CEO of the National Automobile Dealers Association, said in a statement. “The information Treasury released Friday should allay the biggest dealer concerns with their role in facilitating advanced clean vehicle tax credits to consumers at the point of sale starting in January 2024.”

Leading up to the guidance’s release, NADA had been holding regular meetings with Treasury officials. The association’s priorities included a seamless and simple dealer registration process, ease and repeatability of notices and forms that must be submitted to the vehicle buyer and the IRS, and an efficient funding portal for dealer reimbursement.

The Treasury also released guidance specifying what's included in the used EV tax credit's $25,000 sales price cap — a missing detail that left some dealers hesitant to promote those vehicles.

The Treasury in December clarified what's counted in the retail price for new EVs, specifying that "optional equipment physically attached to the vehicle at the time of delivery to the dealer" is included, while optional items added by the dealer as well as destination charges, taxes and fees are not. However, it did not specify what's counted toward the sales price for used EVs.

Under the proposed rules, the used EV sales price would be determined before any trade-in value is applied and defined as "the total sale price agreed upon by the buyer and dealer in a written contract at the time of sale, including any delivery charges and after the application of any incentives, but excluding separately-stated taxes and fees required by law."

The sales price also "would include fees and charges imposed by the dealer to prevent dealers from allocating a portion of the price of the [used EV] to separately stated fees — other than those required by law — and charges to avoid the $25,000 sales price cap."

The sales price, as proposed, would not include separate financing, extended warranties, insurance or maintenance service charges.

A public comment period on the proposed rules ends Dec. 11.