It’s never been a better time to be an electric vehicle (EV) owner in the United States. Americans are fortunate to have EV incentives available at multiple levels. If you buy an EV today, you may be able to take advantage of federal, state, and local EV rebates and incentive programs.
Read on to learn more about the types of EV incentives that are available and how to qualify for the most recent federal EV tax credit.
These incentives are determined by Congress and apply to anyone buying an EV in the United States. Currently, the federal government offers federal tax credits to EV buyers if the vehicle meets certain criteria (details on that below).
Tax credits work like rebates on your tax bill. For instance, if you owe $1,000 in federal taxes but qualify for the full $7,500 tax credit, then you’ll get a check from the government for $6,500 instead. And if you already qualify for a refund on your taxes, then a tax credit increases the total refund you’ll get.
Note that federal tax credits apply only to your federal taxes, so you can’t use these tax credits to lower your state or local tax bills.
States offer their own incentive programs that are quite similar to the federal program, though the tax credit amounts are usually less.
State tax credits only apply to your state tax bill and can’t be used to lower what you owe in federal taxes. States also have different definitions of who counts as a resident. So, if you live or work in multiple states, check each state’s eligibility requirements to find out where you can apply for EV incentives.
Finally, local governments like cities and counties offer their own incentives for EV buyers and owners. These aren’t big-time tax credits like federal or state incentives, but they do include some nice perks that make everyday life easier when you own an EV.
You may already know a little about the federal tax incentive program for EVs, which has been around since 2008. However, the program was significantly changed with the passage of the Inflation Reduction Act, which passed in August 2022.
While some things in the new incentive program are the same as before — namely, the $7,500 tax credit limit —several new rules determine what kinds of EVs and owners are eligible.
Here’s an overview of the new federal tax credit program requirements.
Your modified adjusted gross income must be less than $150,000 for single filers, $300,000 for married couples filing jointly, or $225,000 for anyone filing as head of household.
The manufacturer’s suggested retail price (MSRP) for the EV can’t be more than $55,000. Electric vans, SUVs, and pickups can’t have an MSRP of more than $80,000.
Only EVs with final assembly in North America can qualify for the new tax credit. You can find out where your vehicle was assembled by checking its vehicle identification number (VIN), which is usually found on the lower right corner of your windshield (looking in from the outside).
The biggest change to the new federal EV incentive program has to do with where your car’s parts come from. To qualify for half the tax credit ($3,250), a portion of any critical minerals in your EV must have been extracted and processed in the United States or one of the 20 U.S. free-trade agreement partners. The minimum portion will increase over time as follows:
Critical minerals include copper, lithium, nickel, and other rare earth materials that are extensively used in modern machinery and electronics. Of course, this isn’t something that the government expects customers to know off-hand, so the IRS published a guide to help you look up eligible EV makes and models.
In addition, eligible EVs must utilize batteries whose components have been partially manufactured or assembled in North America. The minimum value is set to increase over time:
Vehicles that meet the battery component requirements are eligible for the other half of the tax credit. In other words, if you want to qualify for the full $7,500 tax credit, your EV will need to meet both the critical minerals and battery components requirements.
The effective date of the new program is August 16, 2022. If you purchased an EV before this date, then the older EV eligibility requirements still apply, even if you didn’t receive your vehicle until after August 16. If you purchased and received your EV between August 16 and December 31, 2022, then you need to meet the old eligibility requirements and the new final assembly requirements to qualify. And any EV purchased on or after January 1, 2023, must fully meet the new eligibility requirements.
The federal government isn’t alone in incentivizing EV owners. Many states, especially those with an interest in reducing emissions or boosting local manufacturing, have their own incentive programs in place, usually in the form of state tax credits.
Each state has different requirements and incentive amounts that typically depend on:
The U.S. Department of Energy keeps a list of ongoing state EV incentives. Your own state may be phasing out an incentive soon, so check the list before it’s too late to qualify!
Local governments don’t typically offer direct tax incentives to EV owners — after all, most cities don’t have an income tax, and not everyone needs to pay property taxes. Instead, cities and counties can offer other benefits to EV owners, such as:
The best part about these incentives is that they’re ongoing and inclusive. Unlike tax-credit incentives, which you can only claim once when you buy your EV, anyone with an electric vehicle can take advantage of local incentives — no complicated country-of-origin or residency requirements to worry about.
While plenty of incentives are out there just for electric vehicles, EV owners can take advantage of other tax benefits designed, which include other kinds of vehicles as well.
For example, some states have incentive programs for all alternative-fuel vehicles (AFVs), which include hybrids and cars powered by hydrogen or compressed natural gas (CNG). As you learn about EV incentive programs in your state, look for programs that apply to AFVs as well as EVs.
Also, remember that EV owners who use their cars for business purposes can take advantage of all the standard deductions for using their vehicles, including mileage, loan interest, and maintenance costs.
Finally, some car insurance companies offer special discounts for EVs. As you look for an EV insurance policy, ask about discounts for green vehicles, alternative fuel vehicles, or fuel-efficient vehicles (different insurance companies have their own names for these incentives).
Incentives for electric vehicles are constantly phasing in and out, and you don’t want to learn you missed out on a great tax break by just a few days! Sign up for eveelife.com notifications and stay current on the latest EV incentive programs in your area, and follow us on Instagram for the latest updates.
Published January 4, 2023 2:13AM
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