A growing number of Americans buying qualifying new electric vehicles are choosing to get a car dealer-related tax credit up front instead of waiting until tax season, according to new data from the Treasury Department.

About 90% of consumers who qualify for the “new clean vehicle” tax credit — worth up to $7,500 — have requested that their tax break be paid in advance, a Treasury Department official said, speaking on background. be issued as

“That means it’s popular,” Ingrid Malmgren, policy director for the nonprofit EV advocacy group Plugin America, said of the data.

Prepayments are a new, optional financing mechanism created by the Inflation Reduction Act, which was signed into law by President Biden in 2022.

They allow dealers to offer an upfront discount to eligible buyers, provided as a partial EV payment, down payment or cash payment to customers. The IRS then reimburses the dealer.

Not everyone may qualify for the full $7,500, depending on the type of car purchased.

Advance payment arrangement started from 1st January.

Previously, all EV buyers had to wait until tax season the year after their purchase to claim tax credits related to that purchase, meaning they could wait several months or longer for their tax break.

Additionally, because the Clean Vehicle Credit is non-refundable, households with low annual tax burdens cannot claim the full value of the tax break on their tax returns. This is not the case with prepayments: eligible buyers receive their full value regardless of tax liability.

Advance payments are also available for the purchase of used EVs. The so-called “pre-owned clean vehicle” credit is worth up to $4,000.

Malmgren said prepayments can help affordability. For example, a cash advance means households may not need to borrow funds from elsewhere to cover a down payment, he said. This can also reduce monthly car payments and overall interest costs, he added.

Car dealers have submitted nearly 100,000 time-of-sale reports for new and used EVs to the IRS since Jan. 1, indicating that a consumer is eligible for the tax break, according to Treasury officials.

The Treasury has issued more than $580 million in advance payments since January 1, the official said.

“Demand is strong in the four months since the implementation of this new provision, saving American consumers more than half a billion dollars,” Treasury spokesman Haris Talwar said in a written statement.

Of course, there are some caveats to prepayments. For one, not all car dealers are participating yet.

To date, more than 13,000 dealers have registered with the IRS Energy Credits online portal to facilitate these financial transfers to consumers. That number is up from 11,000 in early February.

For context, there were 16,839 franchised retail car dealers in the U.S. during the first half of 2023, according to the National Automobile Dealers Association. According to 2021 Cox Automotive estimates, there are also about 60,000 independent car dealers, though they largely sell used cars. Not all of these franchises or independent dealers necessarily sell EVs.

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Additionally, not all EVs or consumers will qualify for the tax break.

The deflationary law has manufacturing requirements for new EVs — intended to encourage more domestic production — that temporarily limit the models that qualify for full or partial tax credits. are

According to data from the US Department of Energy as of March 18, there are currently 36 new EV models available for tax breaks in 2024.

Manufacturers of these models include Acura, Audi, Cadillac, Chevrolet, Chrysler, Ford, Honda, Jeep, Lincoln, Nissan, Rivian, Tesla and Volkswagen. Some models qualify for half the tax credit — $3,750 — instead of the full $7,500.

Cars and buyers must also meet other requirements, including income limits for households and limits on the EV sticker price.

Buyers are required to sign an affidavit at the car dealership certifying that their annual income does not exceed certain eligibility limits. Making a mistake will usually require consumers to pay a tax break to the IRS.