You could call it a tax pre-fund: Starting in January, you’ll be able to get an electric vehicle tax credit of up to $7,500 without having to wait for the IRS to process your return. Instead, you can use the tax credit right away, putting it toward a down payment on a new electric, plug-in hybrid or fuel cell “clean vehicle.”

The credit for electric vehicles, also known as EVs, is nothing new: A version of it was introduced in 2009. In previous years you would have to wait until tax filing time to claim your EV tax credit and the amount of your credit could not exceed the taxes you owed. But new provisions in 2022’s Inflation Reduction Act have made the EV tax credit easier to claim.

As of 2024, any qualified buyer can transfer their clean vehicle tax credit to a registered car dealer and put the credit amount toward a down payment at the time of sale. The buyer gets this benefit regardless of how much tax they may owe when filing their return—meaning they can claim it even if they don’t owe the IRS any money at all.

If you’re in the market for an EV, here’s a rundown of what the changes could mean for you.

How Does the Clean Vehicle Tax Credit Work?

If you buy a new all-electric, plug-in hybrid or fuel cell electric vehicle in 2023 or after, you can claim a clean vehicle tax credit of up to $7,500. The tax credit is available to both individuals and businesses. The car must be used primarily in the U.S. and the manufacturer’s suggested retail price can’t exceed $55,000 (or $80,000 if it’s a van, SUV or pickup truck).

The credit is also available if you buy a previously owned electric or fuel cell vehicle for up to $25,000. However, for used vehicles, the tax credit equals 30% of the sales price or $4,000, whichever is less. This means the maximum credit you could get would be $4,000.

Along with ensuring that your vehicle meets the requirements for the tax credit, you’ll want to check that your income does too. For 2023, your modified adjusted gross income, or MAGI, must not exceed the following amounts:

The IRS allows you to cite your MAGI from the year you take delivery or the prior year, whichever is less. You can still claim the credit if you qualify in either of these years.

The credit is nonrefundable, meaning it won’t generate a tax refund if you don’t owe any taxes.

For years prior to 2023, the new clean vehicle tax credit amount is similar but the rules are different. And the used clean vehicle tax credit isn’t available at all for purchases made before 2023.

How to Exchange Your EV Tax Credit for Cash

As of January 2024, if you qualify for the clean vehicle tax credit, you can opt to transfer the credit to a registered car dealer in exchange for cash or to use as a down payment. You also still have the option of claiming the federal tax credit at tax time.

The registered car dealer will electronically submit the sales information to the IRS to receive an advance payment by direct deposit within 72 hours.

You’ll need to attest that you believe you are eligible for the tax credit and expect your income to fall below the applicable threshold for the current year—the one during which the vehicle purchase takes place—or the prior year.

You must also agree to file an income tax return for the tax year the vehicle is placed in service, and to file it on or before the tax deadline (including extensions).

What Happens if You Receive the EV Tax Credit at the Time of Sale, but No Longer Qualify?

If you opt to exchange your clean vehicle tax credit for cash or down payment, but no longer qualify, you’ll need to repay the full value of the transferred tax credit when you file your taxes.

In this case, you’ll need to report the amount as an additional tax on your tax return for the tax year for which the vehicle was placed in service. Keep in mind that the dealer won’t ever be responsible for paying the IRS back for advance payments.

Also note that if you received the full clean vehicle tax credit but your tax liability is less than the amount of the credit received, the IRS won’t require you to pay it back.

Tips for Other EV-Related Expenses

After you collect your tax credit and drive your EV off the dealer’s lot, you’ll have a few more expenses to deal with.

• If you install a wall charger, remember to file for the federal tax credit. Putting in a wall charger is a pricey proposition, with equipment costs ranging from $200 to well over $1,000. If you need to update your home’s electricity panel for the new charger, that could add to the expense. If your area requires a permit, there may be a fee.

As with the EV, though, you can get a tax break on the charger. You may qualify for a federal tax credit that covers 30% percent of the charger’s installation cost, up to $1,000. To file for that credit you’ll need Form 8911, “Alternative Fuel Vehicle Refueling Property Credit.” Also, some states and localities also offer rebates or reimbursement for installing a wall charger. Good tax software will help you claim all the credits that you’re entitled to.

• Revisit your car insurance coverage. EVs are more expensive to insure than conventional cars. Recent studies report that the average overall cost of repair for an EV is nearly 3% higher than its gas-powered counterpart, and that replacement parts are about 2.7% more expensive, partially because the electrical systems are more complex. Some insurers do offer price breaks on car insurance for EVs, however, including Famers and Travelers.