If you’re reading this piece, you’ve probably already heard about the Federal EV Tax Credit. However, with 2023 and tax season coming up fast, did you know that today’s credit isn’t going to be the same as the one you might get if you buy an EV or plug-in hybrid after January 1st, 2023? Have you heard about the manufacturer’s sales caps that affect which EVs qualify? Did you know that there may soon be a Tax Credit for used EVs?
Keeping up with the EV Tax Credit situation can be confusing, so here’s what we know about the EV Tax Credit right now and what it will look like after the beginning of the new year.
Tax Credit 101: What Is the EV Tax Credit, and How Do I Get It?
Before we start: 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. We’re experts in EVs, not tax law. Please consult your own accounting, tax, and legal advisors before engaging in any transaction.
What Is the Federal EV Tax Credit?
The Federal EV Tax Credit, now officially known as the Clean Vehicle Credit, was implemented to help spur the purchase and production of EVs in the US to help reduce emissions, slow global warming, and so on. The credit was previously known as the Plug-In Electric Drive Motor Vehicle Credit.
As a refresher, a federal tax credit is an amount that reduces the amount of tax money that you owe to the IRS when you file your taxes for the year. Practically speaking, a tax credit can effectively reduce the price of an EV (provided you are in a position to owe federal tax money, which most people are).
The non-refundable Federal EV tax credit is only subtracted from what you already owe. For example, if the credit is worth $7,500 and you owe $20,000 in taxes, then you would receive the full value of the credit (reducing your taxes owed to $13,500). If you owe less than the credit, such as $3,000, then the credit would only be worth $3,000 (reducing your taxes owed to 0). You won’t get a refund check for the remaining $4,500 in possible tax credit.
How Do I Claim the EV Tax Credit?
In order to claim an EV tax credit, buyers need to purchase a qualifying EV (we’ll get to which EV makes, models, and years qualify later in this article). A buyer will need to make sure the dealer or manufacturer gives them a copy of the EV’s letter of certification (an official document from the IRS) which describes the make, model, and tax year that would qualify their EV for a Clean Vehicle Credit. This letter provides the consumer with proof of their vehicle’s eligibility for the credit when it’s time to file their federal taxes.
Next, buyers need to file the appropriate tax form (Form 8936) to claim the EV tax credit during the year the EV is put into service (this can be an important distinction if you sign a contract for purchase in a different year than actually receiving delivery of your EV). Your local tax professionals can help you figure out how to file properly to get the highest credit value possible. If you file your taxes yourself, be sure to check out the IRS website for a full explanation of Form 8936.
We’ve seen some discussion that says dealerships and manufacturers that qualify may be able to give you your tax credit up front by transferring the credit to themselves and giving you the same amount as a discount on your EV purchase (at the point-of-sale). This would essentially be a rebate for consumers —and yes, there’s certainly debate about whether or not this will help keep EV prices affordable. However, the point-of-sale method of receiving your credit value is not currently part of 2022-2023 tax law. At the earliest, this method may be available in 2024.
The Federal EV Tax Credit: 2022 vs 2023
A few major differences exist in terms of the Tax Credit law between 2022 and 2023. The changes involve manufacturer’s sales caps, assembly and sourcing restrictions, and income brackets for eligibility. Let’s take a look at the 2022 EV Tax Credit first:
The 2022 EV Tax Credit
Thanks to previous legislation, the Federal EV Tax Credit in 2022 offers taxpayers up to $7,500 in non-refundable credit on their 2022 taxes for purchasing a new EV. The only disqualifications from the credit were for electric or plug-in hybrid vehicles with a battery smaller than 7kWh or vehicle models that have already met the 200,000 units sold manufacturers sales cap (and have phased out of the credit).
Thanks to amendments to tax law provided by the Inflation Reduction act, qualifying EVs under the previous tax law purchased after August 16, 2022 and before January 1st, 2023, also must be assembled in North America to qualify for the Tax Credit at all. This eliminates a lot of EVs, dropping the qualifiers down to only 18 vehicles at the time of writing:
- 2022 Audi Q5
- 2022 BMW 330e
- 2022 BMW X5 xDrive45e (PHEV)
- 2022 Chrysler Pacifica PHEV
- 2022 Ford E-Transit
- 2022 Ford Escape PHEV
- 2022 Ford F-150 Lightning
- 2022 Ford Mustang MACH E
- 2022 Jeep Grand Cherokee 4xe
- 2022 Jeep Wrangler 4xe
- 2022 Lincoln Aviator PHEV
- 2022 Lincoln Corsair PHEV
- 2022 Lucid Air
- 2022 Nissan Leaf
- 2022 Rivian EDV
- 2022 Rivian R1S
- 2022 Rivian R1T
- 2022 Volvo S60 Recharge
- 2023 BMW 330e
- 2023 BMW X5 xDrive45e (PHEV)
- 2023 Jeep Grand Cherokee 4xe
- 2023 Jeep Wrangler 4xe
- 2023 Lincoln Aviator PHEV
- 2023 Mercedes EQS SUV
- 2023 Nissan Leaf
While the reduction in qualifying vehicles makes waiting to purchase an EV until the next tax year seem much more attractive (we hear the Tesla Model 3 may be eligible for the credit in 2023), it’s important to note that there are a few major changes to actual taxpayer eligibility for the credit next year. Before January 1st, there is no income threshold or vehicle price requirement for claiming the Clean Vehicle Credit, but for the 2023 tax year, this situation will change.
Let’s take a look at next year’s tax credit requirements:
The 2023 EV Tax Credit
Note: Much of the nitty-gritty detail on this credit won’t be completely finalized until December, so be aware that there will likely be changes to the law between now (November 2022) and then. At this time, we’ll include a full list of vehicles that likely qualify (for now, we’ve included a speculative list).
The new Clean Vehicle Credit goes into effect after January 1st, 2023, and extends to December of 2032. This credit gives the same non-refundable credit amount as before ($7,500), but there are several changes regarding which new EVs (Battery Electric Vehicles, or BEVs) and PHEVs (Plug-In Hybrid Electric Vehicles) qualify.
One good change is that the manufacturer’s sales cap of 200,000 electric vehicles will be eliminated, potentially giving some tax relief to those looking to buy from Tesla and GM. However, other changes exclude several vehicles from each of those manufacturers thanks to their selling price.
The upcoming EV tax credit only applies to new electric cars with an MSRP of $55,000 or less, and zero-emissions electric SUVs, trucks, or vans with MSRPs of $80,000 or less. Additionally, there are new requirements regarding battery components and critical minerals that can qualify or disqualify vehicles even if they are assembled in North America and are under the price threshold, and these come in two parts:
- Critical Minerals: The law states that $3,750 of the tax credit requires “the value of the battery’s critical minerals that are extracted or processed in the United States or a U.S. free-trade agreement partner or recycled in North America” in 2023 to be 40% (and the percentage goes up to 80% by 2027)
- Battery Components: In 2023, at least 50% of the battery’s components must be manufactured or assembled in North America to qualify an EV for the next $3,750 of the Clean Vehicle credit.
There are also clauses in the law that include materials from Free Trade agreement partners, making eligibility requirements for each vehicle even more complicated at the same time as making better allowances for source materials. For more information on the exact terms of the new Clean Vehicle Credit materials requirements, check out the Department of Energy’s EV Tax Credit explanation page.
In terms of qualifying Teslas under the new law, the Tesla Model 3 options under $55,000 (at the time of writing, we only see this being the RWD version)—and possibly the Tesla Model Y (Long Range and Performance variants), if the IRS decides to designate it as an SUV—qualify for the new credit. That’s something to look forward to, especially since Tesla-manufactured vehicles haven’t qualified for a credit in a few years. If the Cybertruck makes its debut mid-2023 as currently projected, it may also qualify for the credit (but this is rather unlikely due to the predicted inflation-adjusted price point).
That said here’s our current best guess on vehicles that will qualify for the 2023 EV Tax Credit:
- Cadillac Lyriq (if IRS classifies it as an SUV)
- Chevrolet Blazer EV
- Chevrolet Bolt
- Chevrolet Bolt EUV
- Chevrolet Silverado EV (some trim levels)
- Ford F-150 Lightning (some trim levels)
- Ford Mustang Mach-E
- Nissan Leaf
- Tesla Cybertruck (this is a big maybe, as the base price is likely to be above $80k)
- Tesla Model 3 (Standard Range RWD, Long Range AWD, and Performance)
- Tesla Model Y (Long Range and Performance, if it’s classified as an SUV by IRS)
- Volkswagen ID.4 (Only models which are assembled in Tennesse)
PHEVs will also still qualify for the credit if they meet the same requirements we’ve already covered and have a battery of over 7kWh.
The Alternative Fuels Data Center keeps a handy chart of the EVs currently qualifying for the 2023 Clean Vehicle Credit. At the time of writing, this chart was last updated November 4, 2022, and 2023 vehicles should continue to be added as we get closer to January 1st (and beyond).
One more change to the 2023 law from earlier 2022 tax credit requirements is that individuals are no longer eligible to claim the Clean Vehicle Credit if they are filing singly with over $150,000 income per year, jointly with a combined income of $300,000 per year, or as a head of household at $225,000 per year. This will inevitably exclude quite a few new EV buyers from taking advantage of the credit.
Before we move on to the FAQ, we’d like to mention one more addition to the EV tax credit that will be available in the near future:
Coming in 2023: The Used EV Tax Credit
For the recently legislated Used EV tax credit (officially known as the Credit for Previously-Owned Clean Vehicles), there’s good news and bad news:
The good news is that it’s coming in 2023! We’re excited that lawmakers are finally seeing the value in encouraging folks to buy a used EV. The non-refundable credit goes up to $4,000 or 30% of the used EV’s sales price (whichever is lower).
Unfortunately, the bad news is that the used electric vehicle credit has some pretty stiff restrictions on who can benefit from it and which used EVs qualify:
- Those with a Modified Adjusted Gross Income (MAGI) of over $75,000 individually, $150,000 jointly, or $112,500 as head of household are not eligible to claim the used EV credit
- Used EVs must be purchased 2 years past their model year
- The sales price of the used EV must not exceed $25,000
- The vehicle may only have had one previous owner and only qualifies for the credit once
- Each individual may only claim one used EV credit in a 3 year period
- The sale must take place through a qualified dealer
As we understand it, the current used EV Tax Credit law makes no provision for private sales of used EVs. We’ll keep you updated if this situation changes.
It is also possible that EVs eligible for the Credit for Previously Owned Clean Vehicles still need to meet the same final assembly requirements as those that would qualify for the credit when new (but may be exempt from the Critical Mineral and Battery Component restrictions). However, most commentators on the used EV Tax credit don’t seem to think this will be the case.
We don’t have an exhaustive list of qualifying used EVs, but based on the extremely low price cap of $25,000, you’re likely looking at the following vehicles:
- BMW i3
- Chevy Bolt
- Chevy Spark
- FIAT 500e EV
- Ford Focus Electric
- Ford Transit Connect Electric Cargo Van XLT
- Hyundai Kona Electric
- Hyundai Nexo
- Kia Nero Electric
- Kia Soul Electric
- Mercedes-Benz B-Class Electric Drive
- Nissan Leaf
- Smart fourtwo EV
- Tesla Model S (older 2012/2013 vehicles possibly under $25k in the used market)
- Toyota Mirai
- Toyota RAV 4 EV
- VW e-Golf EV
If you’re searching for used EVs that may qualify for the tax credit, you can check out our listings page and filter by price and seller type (dealer).
EV Tax Credit FAQ
How do EV tax credits work?
An EV tax credit is an amount that you can claim to reduce your tax burden. If you purchase a qualifying vehicle, you would use IRS Form 8936 to figure out your credit amount.
How do I qualify for the EV tax credit?
As a taxpayer, you can qualify for the EV tax credit by:
- Purchasing an eligible new EV
- After January 1st, 2023, having a Modified Adjusted Gross Income (MAGI) of under $150,000 when filing individually, $300,000 filing jointly, or $225,000 filing as head of household
- After January 1st, 2023, purchasing an eligible used EV, and having a MAGI of over 75,000 individually, 150,000 jointly, or 112,500 as head of household
Can I claim my EV tax credit?
Yes, if you’ve purchased an eligible EV, you can claim your EV tax credit in the same calendar year that you put the EV into service.
After January 1st, 2023, you may also be able to pass your credit on to a qualified dealership at the point of sale, effectively allowing you to use your credit like a rebate to reduce the up-front cost of an eligible new EV.
When will the EV tax credit be available?
The EV tax credit is already available in 2022, but conditions for eligibility will change after January 1st, 2023. For more details, see the full discussion in the section “The Federal EV Tax Credit: 2022 vs 2023” above.
How do I file for the EV tax credit?
You can file for the EV Tax credit by filling out IRS Form 8936. Please consult your local tax professional for details.
Is the EV tax credit refundable?
No, the EV Tax Credit is non-refundable.
Are there credits for EV chargers?
Yes! While the previous federal credit expired in 2021, The Inflation Reduction Act reinstated it. For more information on the EV charger Credit, please see the IRS.gov website.
How many EV tax credits can you claim per year?
You can claim one Clean Vehicle Credit (for new EVs) per person per year. For qualifying pre-owned (used) EVs, you can only claim a credit once every three years.