The formation of the solid electrolyte interface (SEI) layer on the surface of the anode electrode of a lithium ion battery prevents further electrolyte decomposition reaction. However, at certain battery operating conditions, the SEI breakdown leading to more electrolyte decomposition reactions that form several species on the anode electrode surface. This paper focuses on the effect of battery potential and charge rate on the decomposition side reaction on the anode electrode of a lithium ion polymer battery, as a result of the breakdown of the SEI layer. The results from this study indicate that raising the state of charge (SOC) increases the rate of the electrolyte decomposition side reaction that resulted in formation of a thick deposit layer at the electrolyte/electrolyte interface. This deposit layer contains lithium that can no longer participate in the reversible electrochemical reaction. In addition, at high cycling potential and charge rates the amount of lithium in the graphite after complete cell discharge increased due to the entrapment of lithium in the graphite. The amount of irreversible capacity loss for the batteries cycled at high potential and current correlates with the amount of trapped lithium in the graphite and the growth of the deposit layer thickness at the electrode/electrolyte interface.