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New 2023 EV tax incentives: How they work, which cars qualify, and where to get even more savings

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Quick facts about federal incentives for electric cars:

  • The government delayed some rules for EV tax credits until March 2023.
  • Select GM
    GM,
    +2.60%
    and Tesla
    TSLA,
    +2.47%
    electric vehicles became eligible (again) for federal tax incentives in January 2023.
  • Many electric cars do not qualify, but we help you find the ones that do.

Consumers considering an electric vehicle right now may want to weigh how tax credits on zero-emissions cars work and how they could affect any upcoming buying decisions.

The Inflation Reduction Act signed in August 2022 includes electric vehicle tax credits provisions set to reshape how Americans buy electric cars and plug-in hybrids.

Read on to learn the impact. We will tell you about the new changes to federal tax incentives for electric cars. The new tax credits can help defray the cost of buying a zero-emission vehicle when combined with state and local rebates.

How the new EV tax credits work

According to Kelley Blue Book research, a new electric car’s average transaction price came in at about $65,000 in November, nearly a 9% jump from a year ago. The industrywide average that includes gas-powered vehicles and electric cars reached about $48,900 in the same timeframe.

  • Extends $7,500 tax credit. The Inflation Reduction Act extends the current incentives of up to $7,500 in tax credits for select electric cars, plug-in hybrids, and hydrogen-powered vehicles that meet its qualifications. The federal government continues to update the list of qualifying vehicles.
  • Discount up front. In the future, it’s possible you can qualify to get your EV tax credit at the time of purchase on new vehicles, though if the dealership does not offer it immediately, you can still request the credit on your taxes.
  • Caps EV price tags. The new incentives restrict qualifying vehicles to low-emissions trucks, SUVs, and vans with manufacturer’s suggested retail prices of up to $80,000 and cars up to $55,000.
  • No limits for manufacturers. As of Jan. 1, 2023, manufacturers like GM and Tesla were no longer limited on incentives to the first 200,000 EVs sold, which was the case under the old tax credits.
  • Used electric vehicle rebate. Anyone considering a used electric car under $25,000 could obtain a new $4,000 tax credit, subject to income and other limits. To qualify, used cars must be two model years old. The vehicle also must be purchased at a dealership. The vehicle also only qualifies once in its lifetime. Purchasers of used vehicles can only qualify for one credit every three years, and to qualify, individuals must make $75,000 or less, or $112,500 for heads of households and $150,000 for joint return filers. The credit ends in 2032.
  • Income caps to qualify. The rebates are limited to individuals reporting adjusted gross incomes of $150,000 or less on taxes, $225,000 for those filing as head of household, and $300,000 for joint filers.
  • Ineligible cars become eligible. Additionally, the measure allows carmakers like Tesla and General Motors, which had run out of available credits under the old plan, to be eligible for them again in January 2023. However, many of their products would still not qualify due to car price caps.
  • New rules on manufacturing locations. To qualify for the subsidy, electric car batteries must be manufactured in the U.S., Canada, or Mexico, while the batteries’ minerals and parts must also come from North America to qualify. Cars with Chinese-made battery components would be ineligible. These rules render many current EVs ineligible. This requirement phases in over time. That means some cars eligible now could become ineligible over time unless manufacturers change their supply chains. However, the U.S. Treasury Department delayed until March the regulations that govern where battery minerals and parts must be sourced.
  • Some leased vehicles may qualify.
  • Hydrogen fuel-cell cars remain eligible. The $7,500 credit also applies to hydrogen fuel-cell cars like the Toyota Mirai or Hyundai Nexo. However, those make sense only for buyers who live near one of America’s few hydrogen refueling stations. Those stations are mostly concentrated in California. 

Learn more: What is EV, BEV, HEV, PHEV? Here’s your guide to types of electric cars

What the old EV tax credits provided

Before the Inflation Reduction Act, buyers could claim a tax credit on just the first 200,000 electric cars a manufacturer sold. That meant that the most popular models lost the credit. The incentive did not restrict income or purchase prices.

The old tax credits also applied to plug-in hybrids and fuel cell vehicles, but not used vehicles.

President Biden signed the act into law on Aug. 1, 2022. Most of its provisions kicked in on Jan. 1, 2023. That created a brief window when the law required qualifying cars to be built in North America, but the 200,000-car-per-manufacturer limit still applied. If you bought an electric car between Aug. 16, 2022, and Jan. 1, 2023, it qualified for a credit only if it was built in North America by a manufacturer that hadn’t sold 200,000 or more qualifying cars.

Tesla and General Motors’ electric car tax credits were reinstated in January. So if you have your heart set on a Tesla Model 3 or perhaps a Cadillac Lyriq, now is the time to act.

Also see: 2.1 million EVs and plug-in hybrids on U.S. roads, and here’s how much gas they’ve saved

List of 2023 electric vehicles that qualify

According to the U.S. Internal Revenue Service, this is the latest list of electric and plug-in hybrid vehicles that qualify if purchased after Jan. 1, 2023. The site notes that several manufacturers had yet to submit information on specific eligible makes and models and for users to check back for updated information.

Vehicle MSRP Limit
Audi Q5 TFSI e Quattro PHEV $80,000
BMW
BMW,
+0.07%
330e 		$55,000
BMW X5 eDrive 45e $80,000
Ford
F,
+2.69%
Escape PHEV 		$80,000
Ford E-Transit $80,000
Ford F-150 Lightning $80,000
Ford Mustang Mach-E $55,000
Lincoln Aviator Grand Touring $80,000
Lincoln Corsair Grand Touring $55,000
Chevrolet Bolt EV $55,000
Chevrolet Bolt EUV $55,000
Cadillac Lyriq $55,000
Nissan
NSANY,
+2.85%
Leaf 		$55,000
Rivian
RIVN,
-0.97%
R1S 		$80,000
Rivian R1T $80,000
Chrysler Pacifica PHEV $80,000
Jeep Wrangler 4xe $80,000
Jeep Grand Cherokee 4xe $80,000
Tesla Model 3 $55,000
Tesla Model Y 7-Seat Variant $80,000
Volkswagen
VWAGY,
+2.00%
ID.4 		$55,000
Volvo
VLVLY,
+3.20%
S60 T8 Recharge PHEV 		$55,000
State and local incentives near you

Though the federal government’s effort makes up the lion’s share of government EV discounts, some states and local governments offer incentive programs to help new car buyers afford something more efficient. These can be tax credits, rebates, reduced vehicle taxes, single-occupant carpool-lane access stickers, and exemptions from registration or inspection fees.

States like California and Connecticut offer broad support for electric vehicle buyers. However, Idaho, Kentucky, and Wyoming are among the states offering no support to individual EV buyers. The U.S. Department of Energy maintains an interactive list of state-level incentives, while Plug In America posts an interactive map of EV incentives.

Also read: What California’s ban on gas cars could mean for you—even if you don’t live there

Your electric utility may help

Lastly, it’s not just governments that can help you with the cost of a new EV. Some local electric utilities provide incentive programs to help buyers get into electric vehicles. After all, they’re among the ones that benefit when you turn your fuel dollars into electricity dollars.

Read: 3 reasons the Hyundai Ioniq 6 makes the Tesla Model 3 seem a bit boring

Some offer rebates on cars. Others offer discounts on chargers or install them free when you sign up for off-peak charging programs.

For example, the Nebraska Public Power District offers a $4,000 rebate to customers who purchase a new electric car.

This story originally ran on KBB.com. 

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US

Congress Faces Deadline for Keeping Government Funded

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WASHINGTON—Congressional leaders are set to return to the Capitol on Monday under pressure to negotiate a spending bill that would fund the federal government’s operations beyond Friday.

Negotiators have days to reach a deal on a full-year spending bill or pass a short-term measure delaying the deadline to avoid a partial government shutdown. To reach a longer-term deal, they will have to break the partisan deadlock between Republicans and Democrats, who are split over $26 billion in nondefense spending. 

Republicans say that Democrats want big increases for entities such as the Internal Revenue Service that they say are already flush with cash. Democrats say their funding priorities, such as funding veterans’ healthcare, are critical. 

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Democrats in the U.S. Senate need to convince at least 10 Republicans to agree to advance a spending bill with the 60 votes needed. In the House of Representatives, a spending bill can be passed with a simple majority. 

Few other items remain on the congressional agenda before new lawmakers take over for the next session, which begins on Jan. 3. Lawmakers who see the spending bill as the last major piece of legislation to pass are also lobbying hard for negotiators to include other measures they see as top priorities. 

Some lawmakers want the spending bill to include the Electoral Count Act, which would change an 1887 law governing how Congress deals with presidential-election disputes. The bill has been pitched as a way to prevent a repeat of what happened following the 2020 election when then-President

Donald Trump

pressured his vice president,

Mike Pence,

to reject the Electoral College votes from some states. Mr. Pence declined to do so.

Other lawmakers are trying to include a measure that would extend a Dec. 27 deadline for

Boeing Co.

to secure federal safety approvals for two new versions of the 737 MAX airplane. The company was required by law to install new cockpit-alerting systems to help pilots resolve emergencies in the wake of two deadly crashes. 

Boeing has said it might cancel two new versions of one of its airplanes if it doesn’t get an extension on a safety-approval deadline.



Photo:

JASON REDMOND/REUTERS

The deadline was set by Congress two years ago, but Federal Aviation Administration approvals have taken longer than expected. Without an extension, Boeing said in a securities filing that it might cancel both planes, exposing it to losses of potentially tens of billions of dollars. 

Sen.

Roger Wicker

(R., Miss.), the top Republican on the Senate committee that oversees transportation issues, said he was hopeful that an extension would be included in a spending bill. 

“I think it’s a reasonable ask,” he said last week.

Lawmakers could also include a provision that would shield banks from penalties if they handle marijuana-related transactions.

Banks that do business with the cannabis industry risk losing their federal banking charters because marijuana, despite being legal in some states, remains illegal on a federal level. As a result, some marijuana businesses are excluded from credit-card processing and rely heavily on cash to operate, making them targets for robberies. 

Sen.

Joe Manchin

(D., W.Va.) could look toward the spending bill as a way to pass a measure that would speed up environmental reviews of major energy projects, including natural-gas pipelines, electricity transmission lines, wind farms and solar-power installations.

Sens.

Martin Heinrich

(D., N.M.) and

Roy Blunt

(R., Mo.) are pushing to include a measure that would steer federal money toward projects to restore habitats for struggling species.

Sen. Joe Manchin (D., W.Va.) could press for changes to environmental reviews for energy projects.



Photo:

SARAH SILBIGER/REUTERS

The measure would fund state conservation plans, which are federally required strategies and wish lists that wildlife agency officials keep on struggling animal, fish and plant populations they monitor. Those plans say more than 12,000 species need conservation help because of extreme weather, habitat loss, invasive species and disease. Such plans received unstable funding in the past.

“Without enough resources, wildlife agencies have been forced to pick and choose which species are worth saving,” Mr. Heinrich said in a statement. 

Senate lawmakers are expected this week to pass a defense policy bill that authorizes U.S. military leaders to purchase new weapons and increase pay for troops, and lifts a requirement for members of the military to get vaccinated against Covid-19. 

The annual National Defense Authorization Act would increase America’s total national security budget for fiscal year 2023 to $857.9 billion. House lawmakers passed the NDAA bill on Thursday with 350 votes in favor and 80 votes against it. 

Republicans had pushed for the bill to end the Defense Department’s Covid-19 vaccine rule, arguing that scrapping it would help recruitment and prevent the loss of additional troops whose departures have left the U.S. military weaker. 

Katherine Kuzminski,

a senior fellow and program director on military, veterans and society issues for the Center for a New American Security, a military think tank, said it is hard to assess whether vaccine-related discharges have hurt the U.S. military’s capability because it is unclear whether the people who left worked in high-profile, hard-to-fill specialized positions or whether they were easily replaceable. 

On recruitment, she said that younger people who are weighing military service “are less likely to make decisions regarding military recruitment based on political debates.”

—Natalie Andrews contributed to this article. 

Write to Katy Stech Ferek at katy.stech@wsj.com

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World

U.K. Prime Minister Liz Truss Fires Treasury Chief, U-Turns on Taxes

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LONDON—U.K. Prime Minister Liz Truss fired Treasury chief Kwasi Kwarteng and reversed crucial parts of her government’s tax cuts, after her plans to jolt the economy into growth unraveled in spectacular fashion following a backlash from financial markets and her party. 

Mr. Kwarteng, who three weeks ago presented the U.K.’s largest tax cuts since the 1970s, was asked to quit by Ms. Truss as markets balked at the scale of the borrowing required to fund the package and her lawmakers protested at the prospect of deep public-spending cuts. Mr. Kwarteng’s tenure as chancellor of the exchequer was the second shortest in recent British history. He was replaced by Jeremy Hunt, a party centrist and former foreign secretary.

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World

U.K. Scraps Plan to Cut Income-Tax Rate for Top Earners

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LONDON—The U.K. government backtracked on a key part of its broad tax-cut plan after facing a backlash from financial markets and a rebellion in its own ranks, sending the pound higher on Monday but marking a major setback for new Prime Minister Liz Truss and her economic agenda.

U.K. Chancellor of the Exchequer

Kwasi Kwarteng

shelved an initiative to cut the top rate of income tax from 45% to 40%, more than a week after a broader fiscal plan to stoke growth through tax cuts and new spending forced an emergency intervention by the Bank of England to prevent a financial crisis.

Ms. Truss, who based her nascent leadership on a sweeping revamp of the British economy, defended the measure as recently as Sunday but eventually buckled under the pressure of international investors who balked at the scale of unfunded tax cuts and Conservative Party lawmakers shocked by polls showing they faced a near total wipeout at the next general election.

The pound rallied 1.3% against the dollar and bought $1.13 in late Monday trading—a higher rate than before the tax plans were unveiled last week. U.K. borrowing costs mostly fell, with the yield on the 10-year gilt slipping 0.21 percentage point to 3.93%, although yields were still far higher than before the plans.

“I know the plan put forward only 10 days ago has caused a little turbulence. I get it,” Mr. Kwarteng, the U.K.’s Treasury chief, told party members gathered at an annual conference on Monday. He said he hoped getting rid of the planned cut to the 45% rate would allow people to focus on the rest of the government’s pro-growth agenda.

He also sought to reassure financial markets: “There is no path to higher sustainable growth without fiscal responsibility.”

U.K. Prime Minister Liz Truss, at the annual Conservative Party conference on Sunday. She defended the package in a BBC interview that day.



Photo:

oli scarff/Agence France-Presse/Getty Images

Under pressure from lawmakers, Mr. Kwarteng late Monday decided to bring forward the Office for Budget Responsibility analysis of public finances to October from Nov. 23. The report is seen as key to providing transparency to the market about whether and when the government program will generate growth.

Still, political analysts said the chaos of the past week marked a rocky start to Ms. Truss’s tenure and raised questions over whether she can hold her party together as she seeks to implement spending cuts to help fund the plan’s remaining tax cuts and reassure markets about the scale of government debts.

U.K. bookmakers Oddschecker on Monday placed the odds of Ms. Truss being forced out of leadership at 4-1, compared with 66-1 last week. “One of the most incompetent, catastrophic debuts in political leadership I’ve seen,” wrote Brian Klaas, an associate professor of global politics at University College London, on Twitter.

The move to slash the top income-tax rate was a small part of a much bigger stimulus announced on Sept. 23 that paired large subsidies to help homeowners and businesses cope with rising energy costs along with the biggest tax cuts in a generation, a package funded by borrowing that raised alarm among investors.

The most controversial part of the plan was the move to cut the highest rate of income tax on the wealthy at a time when high inflation is cutting into real wages and a recession looms.

Conservative Party lawmakers had lined up to criticize the abolition of the tax. On Sunday,

Michael Gove,

a former senior cabinet minister, said it was morally wrong. The growing list of rebels meant the government would likely have struggled to get the top-rate tax cut voted through Parliament.

Despite the change, questions remain about the plan’s economic viability. The change will affect only £2 billion, the equivalent of $2.23 billion, out of an initial package of tax cuts that totaled £45 billion in foregone revenue for the government, according to the Institute for Fiscal Studies, an independent think tank. It estimated the British government would still require an additional £72.4 billion in debt issuance this financial year.

This is “a rounding error in the context of the public finances,” said Paul Johnson, director of the IFS. “The chancellor still has a lot of work to do if he is to display a credible commitment to fiscal sustainability.”

Still, the move to roll back the tax cut was welcomed by some investors as an important signal that the government was responding to market concerns about the plan’s impact on inflation and debt at a time of rising interest rates and financial uncertainty.

“It’s a first step in restoring credibility that was lost after the fiscal statement,” said

Cathal Kennedy,

U.K. economist at RBC Capital Markets.

Government officials on Monday said they intended to press ahead with other measures announced in the mini-budget, including a reduction in the lowest rate of income tax that economists estimated was set to cost much more than the removal of the highest rate in lost revenues. Other controversial measures remain, including scrapping a cap on banker bonuses imposed after the 2008 financial crisis.

The International Monetary Fund gave a rare rebuke of the initial plan, saying it risked further fueling inflation that the BOE sees hitting 11% later this year. On Friday, ratings agency S&P lowered its outlook on U.K. sovereign debt to negative, citing risks to the country’s economy.

Political analysts said the Truss government was likely bowing to political reality as much as economic reality.

“This move is rather symbolic, being less about the amount of money it will save and more about the poor signal it had delivered of ideological tax cuts,” said

Chris Turner,

an analyst at ING Bank. “The move looks driven by a backlash from her own party and perhaps the threat of a sovereign rating downgrade.”

The top-rate tax cut had threatened to completely overshadow the annual Conservative Party conference that is currently under way in Birmingham. The conference, normally a three-day show of devotion to the party leader, is instead turning into a more somber event as the Tories brace for a difficult few years ahead of an election in 2024.

A series of opinion polls after the plan pointed to a big loss of support for the Conservative Party among voters as it approached the gathering.

At the conference,

Chris Philp,

a senior Treasury minister, said he expected the party to support the rest of the tax-cutting package and argued that the U.K. government had a strong balance sheet. “We think they are the right plans because ultimately those plans are what make our economy competitive,” he said.

Turmoil in the U.K. Economy

Monday’s announcement is the latest step to stem the fallout from the fiscal plan. Last week, after coming under pressure from the BOE, the government announced the Office for Budget Fiscal Responsibility, an independent public finances watchdog, will in November lay out the full cost of the package and whether it will generate the 2.5% a year of economic growth the government promises. The government had resisted having the watchdog score the plan.

Mr. Kwarteng also promised on Monday that no new tax cuts would be coming. Both steps were also welcomed by investors.

“That’s quite a shift,” said Chris Jeffery, head of interest rates and inflation at Legal & General Investment Management.

The government said it would outline other steps to pay for the tax cuts in November, including likely spending restrictions such as making below-inflation increases to unemployment benefits. In the meantime, the government is hoping to win over doubters with a drumbeat of new announcements of regulatory reforms to make everything from agriculture to child-care provision more competitive.

Worries about the impact of tax cuts on government borrowing helped push yields on government bonds sharply higher early last week. On Wednesday, the BOE stepped in to halt the surge and the threat of significant harm to some pension funds, announcing that it would buy up to £65 billion of government bonds in a series of daily auctions.

When the bank intervention ends in mid-October, yields could rise again, but not as quickly as in recent days, said Orla Garvey, a fixed-income portfolio manager at

Federated Hermes.

The top-rate tax cut had threatened to overshadow the annual Conservative Party conference that is currently under way in Birmingham.



Photo:

oli scarff/Agence France-Presse/Getty Images

Write to Paul Hannon at paul.hannon@wsj.com, Max Colchester at max.colchester@wsj.com and Anna Hirtenstein at anna.hirtenstein@wsj.com

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Business

Amazon, Berkshire Hathaway Could Be Among Top Payers of New Minimum Tax

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Researchers at the University of North Carolina Tax Center analyzed securities filings to determine what companies would have paid if the tax had been in place last year. They found fewer than 80 publicly traded U.S. companies would have paid any corporate minimum tax in 2021, and just six—including Amazon and

Warren Buffett’s

conglomerate—would have paid half of the estimated $32 billion in revenue the levy would have generated.

The tax, which takes effect in January, is the largest revenue-raising provision in Democrats’ climate, healthcare and tax law. The provision, projected to generate $222 billion over a decade, alters tax incentives and complicates corporate tax decisions. Democrats aimed the provision at large companies that report profits to shareholders but pay relatively little tax.

Berkshire Hathaway would have paid $8.3 billion last year if the new tax law had been in place, according to UNC estimates.



Photo:

Michelle Bishop/Bloomberg News

“Who actually pays a lot is just not very many firms at all,” said Jeff Hoopes, an accounting professor at UNC Chapel Hill who is one of the study’s authors. “My guess is it will not be the same firms every single year.”

Although this wasn’t the aim of the law, it could have an impact on some of the wealthiest Americans. Some Democrats proposed direct taxes on billionaires’ unrealized capital gains earlier in the legislative process. While that wasn’t adopted, the new corporate minimum tax would increase the tax burden on some wealthy shareholders, such as Warren Buffett at Berkshire and

Jeff Bezos

at Amazon.

Mr. Buffett owned 16% of Berkshire Hathaway’s shares earlier this year, while Mr. Bezos owned nearly 13% of Amazon’s, securities filings show. Representatives for Messrs. Bezos and Buffett declined to comment.

Corporate tax directors and accounting firms are also analyzing the law, figuring out how they are affected and preparing to lobby over regulations. Few have estimated its impact publicly.

The UNC analysis comes with caveats. Lacking confidential tax returns that would allow precise calculations, the authors used publicly available financial data. Companies might change behavior to minimize taxes. A one-year snapshot includes unusual situations that cause companies to pay the minimum tax once, generating tax credits that can be used in future years.

Jeff Bezos owned nearly 13% of Amazon shares earlier this year, securities filings indicated.



Photo:

Jay Biggerstaff/USA TODAY Sports

Under the new law, companies averaging more than $1 billion in publicly reported annual profits calculate their taxes twice: once under the regular system with a 21% rate and again with a 15% rate and different rules for deductions and credits. They pay whichever is higher.

The new system, known as the book minimum tax, starts with income reported on the financial statement, not traditional taxable income. Differences between the two—the treatment of stock-based compensation, for example—could drive a company into paying the new tax.

According to the UNC estimates, Berkshire Hathaway would have paid the most in 2021, at $8.3 billion—or about a quarter of the estimated total—followed by Amazon at $2.8 billion and

Ford Motor Co.

at $1.9 billion.

Add the next three companies and that reflects more than half the $31.8 billion total:

AT&T Inc.

at $1.5 billion,

eBay Inc.

at $1.3 billion, and

Moderna Inc.

at $1.2 billion.

Berkshire Hathaway didn’t comment. Amazon declined to comment on the figure but said it awaits federal guidance. Amazon said its taxes reflect a combination of investment and compensation decisions and U.S. laws.

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An AT&T spokesman said the company doesn’t expect the minimum tax to affect its 2023 tax bill. “Academics don’t prepare our taxes; trained and expert tax professionals do that work,” the spokesman said.

Moderna’s tax rate in 2021—its first year with an operating profit—was shaped by the use of deductible net operating losses generated from research expenses, said

Jamey Mock,

the company’s chief financial officer. The company also paid much of its 2021 taxes during 2022. “We do not anticipate those unique conditions factoring into our future tax considerations,” he said.

Melissa Miller, a Ford spokeswoman, said the company pays all the taxes it owes and pointed to tax credits in the law designed to accelerate the transition to electric vehicles.

Heather Jurek, eBay’s vice president of tax, said the study’s computations and interpretations of the law are inaccurate when applied to the company. “UNC’s conclusions are driven by a significant disposition in 2021 that eBay is unlikely to replicate,” she said.

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What will be the impact of a 15% minimum tax on large profitable corporations? Join the conversation below.

Exelon Corp.

is among the few companies that has disclosed what it anticipates to be detailed effects from the tax. The utility-services holding company said in an August securities filing that it expected to incur annual cash costs of about $200 million starting next year, down from an earlier $300 million estimate.

Exelon said it continues to evaluate the tax provision and it expects to benefit from legislative provisions encouraging investment in electric vehicles and electrical-grid modernization.

Lynn Good,

chief executive of

Duke Energy Corp.

, told investors in August that the utility giant also expects to be affected, without providing figures. A spokesman said the UNC estimate, $802 million based on 2021 income, is far too high. He said the company also expects to benefit from the legislation’s tax credits for renewable and nuclear power.

Linking taxes closer to publicly reported profits is intentional. It will become harder for companies to maximize profits to impress shareholders while managing taxable profits downward to minimize payments to governments, tax advisers say.

Mr. Biden has said the new tax means that the days of profitable companies paying no tax are over.

“There are companies that, for a variety of reasons, will perpetually be in a minimum-tax position,” said April Little of accounting firm Grant Thornton LLP.

Some profitable companies could still pay very little or no federal income taxes. Companies can offset up to 75% of tax liability with credits—including renewable-energy incentives Congress just expanded. The law includes special provisions benefiting companies with wireless spectrum investments, defined-benefit pensions and significant capital investments.

“We have the anti-loophole tax bill that’s full of loopholes,” Mr. Hoopes said.

Tax advisers say companies are trying to understand the law, pointing to uncertainties such as the treatment of currency losses and gains, capitalized depreciation deductions and rules around mergers and acquisitions.

By early next year, companies will start providing earnings guidance, making estimated-tax payments and reflecting the tax in quarterly earnings. They might also start crafting mitigation strategies and looking for flexibility in the accounting rules for when income and expenses are counted.

“What I see most people doing right now is worrying about: How is it supposed to work? How am I going to do this without going crazy?” said Diana Wollman, a partner at law firm Cleary, Gottlieb, Steen & Hamilton LLP.

“They’re spending more time trying to figure out what they want to ask for in regulations in terms of either clarity or regulatory discretion than they are trying to figure out how they’re going to game it,” Ms. Wollman said.

Write to Richard Rubin at richard.rubin@wsj.com and Theo Francis at theo.francis@wsj.com

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Business

Europe Holds Emergency Talks on Energy-Market Intervention

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BRUSSELS—European energy ministers are debating plans for an intervention in the continent’s energy markets at an emergency meeting that is aimed at tamping down soaring electricity prices.

Diplomats said many countries—including the European Union’s biggest economies, Germany and France—appeared to agree ahead of Friday’s meeting on the idea of imposing a cap on the revenue earned by nuclear, renewable and other nongas producers of electricity, and redistributing the money to businesses and consumers. The details of how such a plan might work weren’t clear, the diplomats said.

Other measures under discussion include a plan to cut electricity use during peak demand this winter and a temporary cap on the price of natural gas imported from Russia. Some governments want the price cap extended to other sources of gas.

Czech Prime Minister Petr Fiala on Thursday at a terminal in the Netherlands intended to help reduce dependence on Russian gas.



Photo:

Siese Veenstra/EPA/Shutterstock

Ministers also want to prevent high prices from upending electricity markets, by extending emergency credit to traders or changing the rules for the collateral that is required in electricity trading.

Friday’s discussion is unlikely to result in immediate action, diplomats said. Instead, officials expect ministers to come up with a mandate for the EU’s executive arm, which hopes to introduce formal proposals next week.

Governments across the EU are tightening their grip on the region’s energy markets, aiming to limit the economic damage inflicted by Moscow’s move to cut gas deliveries to Europe. Friday’s talks come after national governments have imposed price caps and levies on energy producers in response to fears about social unrest and factory shutdowns.

Governments are looking to craft emergency policies that would apply across the 27-nation bloc, from nuclear-energy reliant France to a handful of countries in central Europe that still consume a lot of Russian gas. At the center of the debate is Germany, the EU’s largest economy, which for decades counted on Russian gas to keep its factories humming. Moscow’s decision to shut down indefinitely the Nord Stream pipeline, the main artery for natural-gas deliveries, has the continent idling factories as it faces surging gas and electricity prices.

“Nothing is a nonstarter now,” said

Václav Bartuška,

the special envoy for energy security for the Czech Republic, which holds the EU’s rotating presidency. Mr. Bartuška added that officials’ thinking on how to tackle the energy crisis has evolved rapidly in recent months. The proposal to redistribute companies’ windfall revenue, for example, “was crazy in June, it was fringe in July, and it was mainstream in August,” he said.

Questions remain about where a potential cap should be set, how the revenue would be collected and how it would be redistributed. The European Commission, the EU’s executive arm, has floated a cap of €200 a megawatt hour, equivalent to around $200, well under current prices in western Europe of more than €340 a megawatt hour. Officials said the level of the cap and its details would be part of the discussions on Friday and the following weeks.

A French official said it might be better to have different caps on electricity depending on the technology used to generate it. “The value generated by a French nuclear plant isn’t the same as the value created by a German lignite plant or a Spanish wind turbine,” the official said.

Another concern is who will decide how the money is used. In some cases, it might not be clear which country’s government should be capturing the additional revenue, or which citizens and businesses should benefit from it.

Western leaders are preparing for the possibility that Russian natural-gas flows through the Nord Stream pipeline might never return to full levels. WSJ’s Shelby Holliday explains what an energy crisis could look like in Europe, and how it might ripple through the world. Illustration: David Fang

Support for the idea was not universal. Lithuania’s energy minister, Dainius Kreivys, on Friday morning called the idea “absolutely a red line” because of concerns it would disrupt electricity markets and result in uneven subsidies across the continent.

The commission has been careful to avoid referring to the windfall-revenue plan as a tax because a change in tax policy would require unanimous agreement from countries, according to EU officials and diplomats. Officials believe that the way they have framed the plan would allow it to pass with a qualified majority, which requires the support of 15 of the bloc’s 27 member states representing at least 65% of the total EU population.

Another proposal that appears to have general support from many member states is a move to limit demand for electricity, particularly during peak hours of use, when prices are highest. One draft document describing the proposal, which was produced by the commission and seen by The Wall Street Journal, suggested that each country should work to reduce its overall electricity consumption by at least 10%. Governments should also identify a set of peak price hours and reduce electricity use by an average of at least 5% during those hours, the document said.

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Earlier this summer, the EU agreed to a plan for member states to cut their overall gas consumption by 15% over an eight-month period, with the possibility of making the target mandatory. Officials said an electricity-savings plan could be modeled on the earlier plan that was focused on gas.

Diplomats said reaching an agreement on a Russian gas-price cap is a more difficult proposition. Although Russia has already sharply reduced the flow of natural gas to Europe, some central European countries continue to depend on Russian gas flows and could be hit hard if the Kremlin decided to turn off the taps entirely.

“We still have questions and worries,” about the idea of putting a cap on Russian gas, Dutch Prime Minister

Mark Rutte

said Thursday. Still, he said his government generally supports the set of proposals that have been put forward, including the idea of a revenue cap for electricity producers.

Write to Kim Mackrael at kim.mackrael@wsj.com and Matthew Dalton at Matthew.Dalton@wsj.com

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The U.S. city where property taxes rose the most last year will likely surprise you

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Today’s home buyers could be in for a shock when the tax man comes calling.

In 2021, around $328 billion in property taxes were imposed on single-family homes across the country, according to a new report from real-estate analytics company Attom Data Solutions. Growth in property taxes decelerated last year, despite the run-up in property values, suggesting that bigger tax bills could be coming down the pike.

Between 2020 and 2021, the amount levied in property taxes only grew by 1.8% on average, representing the second smallest annual increase over the past five years.

“It’s hardly a surprise that property taxes increased in 2021, a year when home prices across the country rose by 16%,” Rick Sharga, Attom’s executive vice president of market intelligence, said in the report. “In fact, the real surprise is that the tax increases weren’t higher, which suggests that tax assessments are lagging behind rising property values, and will likely continue to go up in 2022.”

The rise in home values, which far outpaced the increase in taxes, means that the effective tax rate last year actually decreased to 0.9% from 1.1% the year before.

But in most markets, property taxes increased faster than the national average. The largest increase occurred in Nashville, where property taxes surged 27% on average. Milwaukee was next with an 18.6% uptick in property taxes, followed by Baltimore and Grand Rapids, Mich.

Cities where property taxes declined in 2021 include Pittsburgh (down 35.1%) and New Orleans (down 20.1%). Multiple cities in Texas — Houston, Dallas and Austin — also saw marked decreases in the average property tax bill.

At the state level, Illinois had the highest effective tax rate in the country at 1.86%, followed by New Jersey at 1.73%. Notably, New Jersey had the highest average property tax bill for single-family homes in the country at $9,476. Generally, metro areas in the Northeast and Midwest saw higher property-tax rates than the rest of the country.

The potential for taxes to rise significantly in the future could come to represent a major concern for home buyers at a time when mortgage rates have soared to 5%.

“Prospective homeowners often fail to include property taxes when considering the cost of homeownership,” Sharga said in the report. “But, especially in some of the higher-priced markets across the country, property taxes can add thousands of dollars to annual ownership costs, and possibly be the difference between someone being able to afford a home or not.”

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Business

Inflation Weighed on Consumer Spending Growth in February

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Consumer spending growth, a key engine of the economy, slowed sharply in February, as the Omicron surge of Covid-19 eased and inflation accelerated amid Russia’s invasion of Ukraine.

U.S. households boosted their sending at a seasonally adjusted 0.2% pace in February from the month before, down from a revised 2.7% rate in January, when spending rebounded from an Omicron-related dip in December, the Commerce Department said Thursday.

Household incomes rose in February as the unemployment rate dropped and employers scrambled to hire new workers. Personal income increased by 0.5% in February over the prior month, a pickup after it was nearly flat in January, but inflation rose more quickly. Income after taxes, adjusted for inflation, fell for the seventh straight month in February to the lowest level since March 2020, the Commerce Department said.

The data add up to a picture of the economy growing as shoppers benefit from a strong labor market and rising wages, but see those gains eroded by rising inflation, economists said.

Inflation “will be an even bigger drag in March with surging energy prices in the wake of the Russian invasion of Ukraine,” said

Gus Faucher,

chief economist at the

PNC Financial Services Group.

Consumer prices rose 0.6% on the month and 6.4% on the year, a new 40-year peak as measured by the department’s personal-consumption expenditures price index, the Federal Reserve’s preferred gauge. Annual core PCE inflation, which strips out volatile food and energy prices, rose to 5.4% in February.

In February, the wave of Covid-19 infections from the Omicron variant faded, leading consumers to spend more on services like dining in restaurants and traveling. Services spending rose by 0.9% in February, the most since last July, while goods spending declined by 1%, largely due to lower spending on vehicles as prices continued to rise and supply chain issues hurt availability.

The shift toward services spending shows consumers rebalancing after Omicron hurt demand for restaurant meals and entertainment and forced some Americans to cancel travel plans.

Russia’s attack on Ukraine helped push the price of oil to over $100 a barrel for the first time since 2014. Here’s how rising oil costs could further boost inflation across the U.S. economy. Photo illustration: Todd Johnson

Travel, both for leisure and business, has rebounded faster than expected from Omicron, airline executives said. Major U.S. airlines said earlier in March that their revenues in the first quarter of 2022 will likely be at the high end of what they had expected at the start of the year, or better.

Kim Cook, owner of an Overland Park, Kan., travel agency, said that airline ticket and hotel prices aren’t deterring her customers.



Photo:

im Cook

Kim Cook, the owner of Love to Travel, a tropical destinations-focused travel agency in Overland Park, Kan., said that her customers aren’t letting high airline ticket and hotel prices deter them from booking trips, especially with large groups of friends and family.

“They say, ‘I know it’s going to be pricey, but we haven’t been anywhere in two years, we really want to do this,’” Ms. Cook said. After building up savings during the pandemic, “they’ve got the money to burn.”

New applications for U.S. unemployment benefits rose slightly last week, but remained near historic lows, indicating a strong labor market in which employers are holding on to their workers amid high demand.

Consumers are sending mixed signals about how they feel about the direction of the economy. The Conference Board’s consumer-confidence index for March showed that consumers are optimistic about the Covid situation and the labor market but are concerned about the future impacts of Russia’s invasion of Ukraine on inflation. The invasion pushed up energy and commodity prices, adding to snarled supply chains and goods shortages that were already exacerbating price pressures.

“The outlook going forward is definitely not as rosy as it was,” said Alex Lin, an economist for

Bank of America.

“We’re expecting growth to slow down and consumer spending to slow with it.”

While companies for the most part say they can pass along price increases, they warn there are limits to what consumers will be willing to tolerate before high prices begin to cut into demand.

Inflation and shortages have already pushed consumers to switch from more expensive brands to cheaper options, survey data show. About 70% of U.S. shoppers said they had purchased a new or different brand than they had prepandemic, according to a survey conducted from May 2020 to August 2021 by private-label consulting company Daymon Worldwide Inc.

Meghna Marathe, a consultant in Jersey City, N.J., said that impending parenthood has made her more cost-conscious.



Photo:

Meghna Marathe

“Prices will force the consumer to shift,” said

Lindsey Piegza,

chief economist at

Stifel Financial Corp.

“When you’re talking about disrupting two economies that play major roles in energy and agriculture, that will affect consumer staple prices.”

Meghna Marathe, a 29-year-old consultant in Jersey City, N.J., is expecting her first child in August with her husband. She said impending parenthood has made her much more cost-conscious than she usually is, a change that has only been exacerbated by inflated prices.

“I’ve always kind of been able to, for the most part, not hesitate to purchase something,” she said. Now, when she is out shopping for the baby, she is more cost-conscious and focused on what the baby needs, rather than what might be “just fun to have.”

“A lot of expecting moms go into stores and see all the cute stuff they can buy for the nursery—I’ve been window-shopping, but I haven’t bought any of that,” she said.

Write to Gabriel T. Rubin at gabriel.rubin@wsj.com

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As Fed signals a 25-basis point hike later this month, here’s what that means for your credit-card bill, savings and mortgage repayments

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Federal Reserve Chair Jerome Powell is telegraphing his first punch in the fight against inflation — his intention to support a 25 basis-point increase on a benchmark interest rate, the first in a number of potential rate hikes this year.

Now it’s time for consumers to make their own maneuvers, particularly those who are planning to pay down credit-card debt or build up their savings in 2022.

By itself, a quarter-percentage-point increase will not make a big difference to a credit card’s annual percentage rate (APR) or their savings account’s annual percentage yield (APY), experts say. But stack several rate increases together and consumers will start to feel the pinch, they note.

In Congressional testimony Wednesday and Thursday, Powell previewed what’s he’s considering at a crucial policy meeting scheduled for mid-March. That way, markets do not have to wait in the lurch when there’s already so much uncertainty — due to Russia’s invasion of Ukraine — and they aren’t blindsided when the increase happens to the federal funds rate now near zero.

“I do think it will be appropriate to raise our target range for the federal funds rate at the March meeting in a couple of weeks. And I’m inclined to propose and support a 25-basis-point rate hike,” he told lawmakers Wednesday.

On Thursday, he reiterated plans for a 25-basis-point increase and said he supports a “series” of 2022 hikes. If price inflation rates stay high, the Fed would be ready with rate hikes exceeding a quarter percentage point, Powell said.

Markets liked the certainty, and it’s a helpful heads up for consumers because the federal funds rate strongly influences a credit card’s APR and a savings account’s APY. Here’s more on that relationship:

Added credit-card costs

If a rate hike does comes this month, it could be April or May when credit-card holders see the higher APR reflected on their bill, said Matt Schulz, chief credit analyst at LendingTree. For anyone with credit-card debt, “any rise in rates is unwelcome, but the truth is that the Fed’s move in March isn’t likely to rock most people’s financial world, if it is only a quarter-point increase. The danger comes if the rate increases keep coming — and in bigger chunks.”

Consider this scenario:

A person carries a balance of $5,000 and makes $250 monthly payments, with a 16.44% APR (the average credit card interest rate in 2021’s fourth quarter, according to the Fed). To pay off the balance, the person will pay $884 in interest, Schulz said.

In comes a 25-point basis point increase:

That would bring the APR to a potential 16.69% because the prime rate — which issuers use to make their credit-card rates — historically absorbs the full amount of the federal funds rate increase, Schulz said. Now the same person is paying $900 in interest to pay down the balance, a $16 increase over the life of the loan, he said.

And another 25-basis-point increase:

With an APR of 16.94%, that turns into $917 in interest, an additional $32 during the loan’s duration.

If there are six, quarter-percent rate increases — which isn’t out of the ballpark when some observers say there could be seven hikes — that turns into a 1.5% rise for APR, Schulz said. Now the borrower has to pay $985 in interest, he said. That’s $101 extra during the life of the loan.

In a time of high inflation, an extra $101 being paid to interest instead of groceries or gas will be a tough reality for families living paycheck to paycheck. Average hourly earnings were flat from January to February, but up 5.1% year-over-year according to Friday’s jobs report.

Americans had approximately $860 billion in credit-card debt during 2021’s fourth quarter, according to the Federal Reserve Bank of New York. Borrowers had an average $4,857 in credit-card debt during the third quarter, according to TransUnion
TRU,
+2.13%,
one of the big three credit bureaus.

It’s worth noting that some rates will be higher depending on a cardholder’s credit history. In February, the average rate for all new card offers was 19.53%, according to LendingTree.

Higher savings-account yields

“The good news about interest-rate hikes is that consumers who put their money in high-yield savings accounts will grow their money faster so continuing to shore up savings this year will yield more returns than last year,” said Gannesh Bharadhwaj, general manager of credit cards at Credit Karma
INTU,
-1.64%.

Savings accounts are a place to safely store easy-to-access cash, rather than to reap large returns. Extra interest yields after a rate hike will be modest at first but can pile up depending on how many rate increases occur, said Ken Tumin, founder and editor of DepositAccounts.com.

Right now, an online savings account has an average 0.49% APY, he said. Historically, rate increases haven’t all been passed along to the APY, at least at first, Tumin said.

A 25 basis point hike could mean a potential average APY around 0.55% – 0.6%, he estimated. If a savings account has $10,000, that little step up bears an extra $10, Tumin said.

But the talk is of multiple rate increases. If there are six, quarter-percentage-point increases, that same $10,000 account could produce an extra $100 in a year, he estimated.

Online savings accounts are the places to find the elevated APYs, not the “brick and mortar” banks, Tumin said.

During the previous rate-hike cycle from 2015 to 2018, there were three, quarter-point increases “before the average high-yield savings account APY had any significant gain,” he noted. “The rise may be faster this time due to high-yield savings account rates that have fallen to levels much lower than the bottom levels before 2015.”

‘A marginal impact’ for mortgage rates

“For housing, the Fed’s short-term rate has a marginal impact on mortgage rates,” said George Ratiu, senior economist and manager, economic research at Realtor.com.

There’s a different Fed action connected to those rates, he said. Along with dropping the federal funds rate during the pandemic’s early days, the central bank also bought up Treasury debt and agency mortgage-backed securities. The central bank has decided it’s a good time to end that.

From 2020 to 2021, those Fed purchases injected liquidity and sent mortgage rates to the basement, Ratiu said. “As the Fed announced it planned to finalize its tapering of [mortgage-backed securities] purchases later this month, we have seen rates surge to highs not seen since mid-2019.”

So prospective homeowners are already paying for Fed actions. The average 30-year fixed mortgage rate hit 3.76% this week, Freddie Mac
FMCC,
-1.41%
said. To put that in context, the 30-year fixed mortgage rate was closer to 2.7% a year ago.

One basis point is equal to one-hundredth of a percentage point. It’s major shift from just a few weeks earlier when the average rate for the 30-year loan jumped to the highest level since May 2019, close to 4%.

February’s median listing came to $392,000, according to Realtor.com. Compared to a year ago, a buyer would pay $278 more on their monthly mortgage, Ratiu noted. That’s more than $3,300 added to the buyer’s yearly financial burden.

“Additional increases in mortgage rates will further squeeze buyers’ budgets and may limit first-time buyers’ ability to qualify for a mortgage, especially with prices continuing to advance,” he said.

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Elon Musk Might Sell Tesla Stock. Here’s the Real Reason for the Sale.

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Tesla CEO Elon Musk tweeted about proposed taxes on unrealized gains, and possibly selling stock. His followers want him to sell, which might just be Musk’s best move.


Getty Images

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Tesla

‘s iconoclastic CEO Elon Musk made waves over the weekend when he asked his millions of


Twitter

followers if he should sell Tesla stock, creating a taxable event. It generated comments from the government and sparked additional debate over the taxation of the ultrawealthy.

Igniting a Twitter (ticker: TWTR) firestorm might have been Musk’s endgame. He might, however, just be making smart tax-planning decisions. But no, the Twitter poll isn’t a hidden way to avoid paying taxes on some of his stock options.

If Musk abides by the poll and chooses to sell long-held Tesla (


TSLA

) stock, then the gains on sale will be taxed as long-term capital gains, explains accounting expert Robert Willens. What’s more, selling in 2021 would allow Musk to avoid higher rates if those being proposed by the Biden Administration become law.

Right now, most long-term capital gains—which are gains from investments held for more than one year—are taxed at 15% up to about $500,000 in taxable income and taxed at 20% beyond that level of income. Some of the president’s tax proposals would tax capital gains for high earners as ordinary income. The top marginal tax rate on ordinary income in the U.S. today is about 37%.

“People have been looking at this …for a while,” explains Willens. “They are looking to protect the value of their life’s work.” Willens, who was a top-ranked accountant on Wall Street for years before forming his own firm in 2008, believes some increased M&A activity this year has been driven by the potential for higher tax rates in years to come.

Musk could save $3 billion to $4 billion in federal tax, depending on what changes the Biden Administration can implement.

It’s not certain where Musk would source the stock for a sale, though. Tesla didn’t return a request for comment. He could sell existing stock and/or obtain stock through vested options and sell those shares. In that latter case, the difference between the award price in the stock option and the stock price—or the gain from exercising and selling—would be taxed as ordinary income. That type of transaction isn’t subject to capital-gains accounting.

There is no taxable event for executives with stock options until they are exercised. “He cannot avoid …ordinary income …on exercise of the stock options even if he were to hold the stock purchased on exercise,” says Willens. “Whether he holds or disposes of the option stock is entirely irrelevant.” The gain on exercise is essentially management compensation and will be taxed like anyone’s regular paycheck.

Stock options are a little different for executives receiving restricted stock units, or RSUs. Those are taxable when they vest—or when the executive has earned them.

Musk’s compensation is mostly stock options. In fact, he has no base salary. In 2018, Tesla awarded Musk options to purchase 101,320,210 shares that vest in 12 separate tranches based on performance milestones. As of the date of the 2021 Tesla proxy statement, six of the 12 tranches have vested. That means Musk has about 50 million of the options from the 2018 award available for exercise. Those options require Musk to pay about $70 per share.

He also has about 23 million in vested stock options from an older 2012 award. Those have a strike price of about $6.

Tesla stock closed Monday at 1,162 a share, down 4.9% Monday. News that a boatload of Tesla stock might be hitting the open market—and diluting the company’s share count, if sourced from options exercises—sent shares down 4.9% to a close of $1,162. The


S&P 500
and


Dow Jones Industrial Average
rose 0.1% and 0.3%, respectively.

At current prices, the implied gain in the vested options from Musk’s 2018 award is more than $100 billion. What’s more, Musk holds about 170 million Tesla shares worth roughly $200 billion.

Write to Al Root at allen.root@dowjones.com

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