Federal EV Tax Credit
To accelerate the adoption of electric vehicles (EVs) and plug-in hybrids (PHEVs), the US Government offers a federal EV tax credit of up to $7500 to anyone purchasing or leasing an electric car. As one might imagine, car dealerships are excited to share the $7500 tax credit to encourage you to buy a car.
However, dealers are much less likely to educate you about the exceptions that may prevent you from accessing the full $7500 credit. The tax credit depends on the manufacturer you choose and vehicle battery. The credit is also non-refundable, meaning that you need to have income tax liability (owe money on your taxes) to receive value from it.
Here’s a step-by-step guide to making an educated decision about electric car tax credits.
Personalize Your EV Tax Credit
Want to skip the reading and personalize your EV tax credit based on your vehicle, zip code, and income? Try EV Life’s Incentive Finder by selecting any vehicle here.
Before we get started: we wanted to remind you that this article is for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
2022 EV Tax Credit Updates from the Inflation Reduction Act
When choosing an electric vehicle, not all models qualify for EV tax credits.
When President Biden signed the Inflation Reduction Act on August 17, a new rule took effect requiring that final assembly of EVs must occur in North America to qualify for a EV tax credit going forward. All foreign manufacturers lost their credits immediately, and according to the IRS, only 20 vehicles still qualify for EV tax credits in 2022.
Here’s the full list:
|Electric Vehicle||Model Years||Incentives|
|Audi Q5||2022||Personalize incentives|
|BMW 330e||2022, 2023||Personalize incentives|
|BMW X5||2022||Personalize incentives|
|Chrysler Pacifica PHEV||2022||Personalize incentives|
|Ford Escape PHEV||2022||Personalize incentives|
|Ford F-150 Lightning||2022||Personalize incentives|
|Ford Mustang MACH-E||2022||Personalize incentives|
|Ford Transit Van||2022||Commercial EV. Not listed.|
|Jeep Grand Cherokee PHEV||2022||Personalize incentives|
|Jeep Wrangler PHEV||2022||Personalize incentives|
|Lincoln Aviator PHEV||2022||Personalize incentives|
|Lincoln Corsair Plug-in||2022||Personalize incentives|
|Lucid Air||2022||Personalize incentives|
|Mercedes EQS SUV||2023||Limited supply. Unlisted.|
|Nissan Leaf||2022, 2023||Personalize incentives|
|Rivian R1S||2022||Personalize incentives|
|Rivian R1T||2022||Personalize incentives|
|Volkswagen ID.4*||2023||Personalize incentives|
|Volvo S60||2022||Personalize incentives|
*Only North America made Volkswagen ID.4 models qualify. Submit VIN number to verify.
What about EV tax credits in 2023?
As we recently wrote, Americans are still waiting for official guidance from the IRS, but new rules for MSRP price caps and battery manufacturing will result in even fewer electric cars being eligible for EV tax credits in 2023. It will take a couple of years before automakers meet the strict new guidelines for battery manufacturing, in particular.
From January 1, 2023, it looks like the following vehicles might qualify for up to $3,750:
- Tesla Model 3**
- Tesla Model Y***
- 2023 Cadillac Lyriq
- 2023 Chevrolet Bolt
- 2023 Bolt EUV
**only models under $55,000
***only if the government agrees to designate Model Y an “SUV”
Income rules for 2022 vs. 2023
Also, if you file income taxes for greater than $150,000 as a single taxpayer or over $300,000 as joint filer, 2022 is the time to buy. You will likely not qualify for an EV tax credit in 2023.
Your electric car tax credit applies only “up to” your taxes owed.
Once you’ve determined the tax credit for your make and model, the next step is to determine your tax liability. This credit applies to taxes owed in the year you buy your vehicle, so your federal tax bill will determine the maximum amount you can get back as a tax refund. (For example, if you buy a Nissan Leaf with a $7500 tax credit in 2019, but you only owe the federal government $1500 in taxes in 2019, the maximum credit you can use is $1500.)
How can you determine your tax liability?
The easiest way for most people to estimate what you’re eligible for is to use your previous year’s tax liability. If you file taxes using the 1040 form, your tax liability is the “Amount You Owe” listed on Line 22.
If your taxable income has changed significantly between this year and last year (e.g. change in job or taxes withheld) last year’s tax liability may not be a helpful reference for you.
Note: Always consult licensed CPA to get advice on your true tax liability.
⚠️ Watch out for car dealers who use phrases like ‘we guarantee you can get you the full $7500 tax credit.’ The statement is technically true: they can give you the full credit. What they’re intentionally not saying is that the tax credit can only be used for the taxes you owe.
⚠️ Also, the electric car tax credit can only be used in the tax year you purchased a vehicle. You cannot apply unused credit to any other tax year.
How to claim the electric car tax credit
Once you’ve purchased an electric vehicle, just fill out Form 8936 and submit it as part of your normal annual tax filings. Be sure to report the tax credit from Form 8936 on the appropriate line of your tax form (e.g. Form 1040) on your federal tax return.
How long will it take to get your tax credit?
Any tax credit comes back to you in the form of a tax refund, so the timing of your credit is entirely dependent on when you file your taxes and when the federal government returns your refund.
If tax credits still sound complicated, consider leasing.
If you don’t owe the federal government $7500 in taxes, leasing could be a great workaround to maximizing the benefits of the credit. When you lease a vehicle, the manufacturer claims the electric vehicle tax credit (not you). In many cases, the carmaker will pass all or most of the tax credit into the cost of your lease. For example, if you only owe $2,000 in federal taxes, you can only use $2,000 of the tax credit if you buy. However, you could still save $7500 by leasing your car through the manufacturer.
Leasing could also help you reduce the time and hassle of understanding your tax liability and applying for the credit.
Finally, be sure to ask the carmaker if they’re passing the full $7500 tax credit into the lease. While it’s a common practice, carmakers aren’t required to do so.
What other incentives are available?
In addition to the federal electric car tax credit, you could qualify for rebates from your state, utility, HOV carpool perks, and more.
To learn what rebates and incentives you qualify for, try our free Electric Car Incentive Finder.
About The Author: Peter Glenn
Co-Founder at EV Life. New dad. Lover of EVs, exploring the Great Outdoors, and pickled beans.
More posts by Peter Glenn