How Does the EV Tax Credit Work?

In much-needed good news for the environment, sales of electric vehicles, EVs, are steadily on the rise. This spike in interest may be attributed to the new EV Tax Credit, which was implemented in August 2022 as part of President Joe Biden’s Inflation Reduction Act (IRA) aimed at fighting the climate crisis.

Whether you’ve already purchased a new EV and want to claim it on your 2022 taxes, or are hoping to take advantage of this tax credit in the future, it’s important to know everything about this complex policy to ensure you aren’t leaving money on the table. Lucky for you, we have you covered!

What Is the EV Tax Credit?

In plain terms, the EV tax credit is a partial reimbursement from the federal government for the purchase of a plug-in electric or “clean” vehicle. The credit is claimed on the following year’s tax filing and is nonrefundable, meaning that while it can lower your tax bill to zero, you will not receive a refund from it.

Now, determining your eligibility can be complex, as it is based on a variety of factors, from who owns the car, to how many cars the manufacturer has created, to the car’s battery capacity. Furthermore, the IRA has changed the qualifying factors for cars purchased from 2023 until 2032 to make the credit more inclusive. While this is great news for would-be EV buyers, it does complicate the filing process slightly.

To aid you in understanding how the EV tax credit works, we’ve separated this article into two main sections: one for those who purchased an EV in 2022 and one for those who plan to purchase an EV. No matter which camp you fall into, here’s what you need to know.

I Bought an EV in 2022—What Do I Need to Know?

Good for you! The EV tax credit for 2022 cars ranges from $2,500 to $7,500, depending on a few key factors. Read on for requirements to ensure your eligibility before filing.

Am I Eligible to Claim the EV Tax Credit?

Cars purchased in 2022 must meet the following requirements to qualify for the EV tax credit:

• The car must have been purchased between August 16, 2022, and December 31, 2022.
• The car must be plug-in electric or fuel-cell.
• The car must be new.
• The car must be owned by the filer (not leased).
• The car must weigh less than 14,000 pounds.
• The car must have been made by a manufacturer that has not yet sold 200,000 vehicles. (This eliminates Tesla and GM models.)
• The car must have experienced its “final assembly” in North America. (To check your vehicle’s final assembly location, enter the vehicle identification number (VIN) here.)

To help determine if your particular car meets these requirements, check out this list from the U.S. Department of Energy.

Also note that if you entered into a “binding written contract” to purchase a qualifying car in 2022 but have not yet received it, you can still claim it.

How Do I Claim the EV Tax Credit?

To claim the EV tax credit, simply fill out Form 8936 and include it when you are filing your 2022 taxes in the coming months.

I Plan to Buy an EV in 2023 or Beyond

baona/Getty Images

Love that for you! The great news here is that far more EVs now qualify for some form of tax credit, up to $7,500 for new cars and $4,000, or 30% of the retail price, for used cars—yes, used cars now qualify! The bad news is that determining eligibility is more complex and nuanced. Here are some factors to consider before purchasing, including eligible vehicles, affected income brackets, and what information you’ll need for filing.

Which Cars Are Eligible for the EV Tax Credit Now?

As mentioned above, both new and used cars are now eligible for the EV tax credit. Note that the credit can only be claimed once every three years. Here are the new eligibility requirements.

• The car must be purchased between now and 2032.
  • If purchased in or after March 2023, the car must accord with the battery and minerals sourcing requirements below.
• The car must be plug-in electric or fuel-cell.
• The car must be owned by the filer (not leased).
• The car can be manufactured by any manufacturer, regardless of their sales figures—Tesla and GM models now qualify.
• The car must have experienced its “final assembly” in North America (check here).
• The car must accord with the following manufacturer-suggested retail price (MSRP) price caps:
  • $80,000 or under for SUVs and pickup trucks
  • $55,000 or under for sedans and passenger cars
  • The car must have an MSRP of $25,000 or less.

• If used, the car must be at least 2 years old.

Battery and Minerals Sourcing Requirements

The new EV tax credit is broken into two halves, each for $3,750. To get some or all of the first half, a certain percentage of the car’s battery must have been manufactured in North America, based on the following thresholds:

• 2023: 50%
• 2024 and 2025: 60%
• 2026: 70%
• 2027: 80%
• 2028: 90%
• 2029 through 2032: 100%

To get some or all of the second half, a certain percentage of the “critical materials” used in the car’s battery must have been extracted or processed within the U.S., or a free-trade-agreement country. Those thresholds are as follows:

• 2023: 40%
• 2024: 50%
• 2025: 60%
• 2026: 70%
• 2027 through 2032: 80%

Additionally, starting in 2024, manufacturers may not source battery parts from a “country of concern” (like China), and in 2025, EVs cannot contain any critical materials sourced from said countries of concern.

For further clarification, the IRS has also released lists for qualifying new cars and used cars.

How Does My Income Affect My Eligibility to Claim the EV Tax Credit?

FooTToo/Getty Images

In addition to the price of the car, your adjusted gross income (AGI) will now also affect your eligibility for the tax credit. The government has different requirements based on new or used cars, as well as tax filing status, so check the thresholds below:

For New Cars

• Single: $150,000 or under
• Head of Household: $225,000 or under
• Married, filing jointly: $300,000 or under
• Married, filing separately: $150,000 or under

For Used Cars

• Single: $75,000 or under
• Head of Household: $112,500 or under
• Married, filing jointly: $150,000 or under
• Married, filing separately: $75,000 or under

What Information Do I Need to Claim the EV Tax Credit?

Car sellers must provide buyers with a report containing certain information on the car by the date of purchase. Ensuring you have this report and that it contains the following information will help you massively when filing your taxes.

• Seller’s name and taxpayer identification number (TIN)
• Buyer’s name and TIN
• Date of sale
• Sales price
• Verification of the maximum tax credit the vehicle is eligible for
• Vehicle’s identification number (VIN)
• Vehicle’s battery capacity
• Verification that you are the original user of the vehicle
• A statement of declaration from the seller under penalty of perjury

How Do I Claim the EV Tax Credit?

There are two key ways moving forward that you can claim the tax credit. The first is the same as before: file form 8936 with your taxes. The second is to claim the credit directly at the point of sale with the car manufacturer in the form of an instant discount. The IRS and the Department of Treasury will release further guidance on this credit transfer method in the coming months.

Final Notes

Phew! Give yourself a pat on the back for making it this far. This new federal incentive program is certainly complex, but its payoff is more than worth the red tape. This tax credit promises not only tangible reductions of global carbon emissions, but also thousands of dollars in savings on a new car.

When you have the energy, also be sure to check out any incentive programs or credits your state may offer. Not all states allow you to “stack” these incentives with the federal ones, so be sure to check that before applying. Additionally, if you have the means, it may be worth speaking to a trusted attorney, CPA, or tax advisor before purchasing.