“A fine is a tax for doing wrong, while a tax is a fine for doing well.” You are doing well when you purchase your first electric vehicle.
But wait, there is a catch this time, as the government will not fine you much for doing well here. Yes, the government has proposed EV tax credit when purchasing your first electric vehicle.
In this article you will learn about the existing US EV tax credits and the several benefits.
What Is An Elecric Vehicle Tax Credit?
The federal government is promoting the use of EVs, and the credits can help you reduce the cost of the vehicle. If you consider buying an EV or PHEV (Plug-in Hybrid Electric Vehicle) in the US, you may want to know what the EV tax credit is. This tax credit helps you offset your vehicle’s costs by giving you $3,500 each year. But if you want to avoid incurring a tax liability, it’s best to use the credit value you get now. You’ll only be responsible for paying it if you sell your electric vehicle within three years of its purchase.
Although the EV tax credit is non-refundable, the amount you can claim is limited. As a result, you might be able to get a refund of up to $7500. The amount of money you can receive depends on your income and state. However, if you want to buy an EV and own a charging station, check the amount you can claim. It can be as high as $3000, so it’s worth researching the difference.
Once you buy an EV, you must complete IRS Form 8936 and file your federal tax return. You can receive up to $7,500 in tax credits, but you can only claim them if they exceed your tax liability.
In addition, many states offer incentives to encourage the purchase of new EVs, such as tax credits, reduced registration fees, and cash rebates. So, you’ll need to know what your state offers to benefit from the credit. Since the tax credits vary from state to state, you must determine which will offer the most savings. Depending on the model of your new electric vehicle, you may be able to claim the full tax credit of up to 30 percent.
Additionally, you may qualify for some utilities to receive a rebate for installing a Level II home charger. Before you decide to purchase an electric vehicle, learn about your options. While it is possible to save up to $2,600 in one state, you may not be able to get it if you live in another state.
The credit is available in all fifty states and may help you save thousands of dollars on a new EV. For instance, Californian drivers can receive a $2,000-$4,500 rebate and an additional $5,000 grant, depending on their income level. Additionally, the state offers free parking spaces and priority driving lanes for EVs. In New York, residents can receive a $500 or $2,000 rebate, depending on the vehicle’s base price and other factors.
You must purchase an electric vehicle or plug-in hybrid to claim the tax credit. It must have four wheels, be powered by batteries, and be capable of external recharge. It can be an electric motorcycle or a high-end commercial vehicle. It must also be a vehicle with a battery pack that holds up to four kWh. Regular hybrids are not eligible for this credit. The IRS has outlined the guidelines for eligibility on its website.
The EV tax credit is an incentive for consumers to purchase an electric vehicle. Credit will remain offered until a minimum of 200,000 of the manufacturer’s eligible cars have been bought or hired. After that, the credit will begin to fade out for that manufacturer.
By late June 2022, Toyota EV sales will reach over 200k units. Once this gets phased out, you won’t be able to use the credit to buy a new one. You can’t transfer the credit to another owner; it is valid for the vehicle’s original owner.
Key Highlights To Remember:
> EV tax credit up to $7.5K
> The lease credit will go to the leasing company.
> The EV tax credit will phase out when a manufacturer sold out 200,000 units
> Tesla and GM are no more eligible.
EV Tax Credit for California
The plug-in hybrid and zero-emission light-duty vehicle rebates in California are up to $4.500 for FCEVs; $2,000 for EVs, $1,000 for PHEVs, and $750 for zero-emission motorcycles.
Individuals can qualify to receive the rebate based on the annual gross income reported on a taxpayer’s federal tax return. People who earn a yearly gross income that is above the thresholds listed below are qualified for all rebates, except for the ones that apply to FCEVs:
| Single Filers | Head-of-Household Filers | Joint Filers |
| $150,000 | $204,000 | $300,000 |
The Clean Vehicle Rebate Project (CVRP) provides rebates to eligible local and state public bodies to purchase qualifying fleet vehicles with light-duty. Public fleets in poor communities are suitable for higher incentives. Refunds are offered at the following levels:
| Technology | Standard Rebate | Increased Rebate |
| Fuel Cell Electric Vehicle | $4,500 | $7,000 |
| All-Electric Vehicle | $2,000 | $4,500 |
| Plug-In Hybrid Electric Vehicle | $1,000 | $3,500 |
To know about the California laws and incentives in detail, you can click here.
EV Tax Credit for Illinois
Starting July 1, 2022, and lasting until funds are available, anyone who is an Illinois resident and buys an electric passenger vehicle in Illinois can request a rebate according to the amounts listed below.
| Beginning July 1, 2022 | Beginning July 1, 2026 | Beginning July 1, 2028 |
| $4,000 | $2,000 | $1,000 |
The rebate amount cannot exceed the cost of purchasing the automobile. The purchaser must own the car for 12 consecutive months following the date of purchase. One rebate is granted to a buyer during any ten years.
EV Tax Credit for Colorado
Residents of Colorado can benefit from an additional EV tax credit of $2,500 when purchasing their first electric car. Some dealers can provide this at the time of purchase.
However, there is a catch, as the credit will keep decreasing with the passing of every few years.
Check the table below to have a better understanding of the credit impact:
| Jan 2021-2023 | Feb 2023–2026 | Leases between 2021-2026 |
| $2,500 | $2,000 | $1,500 |
Credit is refundable for tax years beginning January 1, 2010, through January 1, 2022. The credit is initially used to offset the taxpayer’s tax obligation who leases, purchases, or converts the motor vehicle that qualifies for the credit. Any excess credit is refunded if the credit is more than taxes due.
EV Tax Credit for New York State
Back in January 2022, New York State governor Kathy Hochul announced that the state’s Drive Clean Rebate program was enhanced with the addition of $12 million in funds. This additional fund helps every electric vehicle purchaser save $2,000 by getting a point-of-sale rebate.
This ultimately becomes a perfect incentive when it adds up with the federal tax credit of $7,500. This is an opportunity that you might not want to miss out on.
However, the rebate value depends directly on the battery-only range of your electric vehicle
- A $2,000 rebate is for a battery range of 200 miles and above.
- Any content between 40 to 199 miles will allow you for $1,000 rebate
- You get $500 off for any content below 40 miles.
We have listed a few cars below that currently qualify for the entire NYS tax rebate of $2,000:
- Tesla Model 3 Standard Range Plus
- Nissan Leaf 62 kWh
- Volkswagen ID.4
- Kia Niro Electric
- Hyundai Kona Electric
- Chevrolet Bolt EV
The Chevy Bolt is currently the only vehicle eligible for the entire $12,500 tax credit. It is manufactured in Michigan, but LG made the battery in a nearby factory. Currently, production of the Chevy Bolt has been suspended as GM attempts to resolve the defective battery. The credit will be phased out in 2022, though, if the legislation is passed. And EVs are expected to outsell all gas-powered vehicles by 2022.
If you’re considering purchasing an electric vehicle, the federal government’s new EV Tax Credit is a great way to reduce your taxes. The credit equals $2,500 for a four-kilowatt-hour battery and increases by $417 for every additional kilowatt-hour of battery capacity. EV tax credits can be applied to your regular federal income tax liability or alternative minimum tax bill. The credit does not have income limits and will phase out once 200,000 qualifying vehicles have been sold.
While the EV tax credit is more complicated than the average tax credit, it can be an excellent opportunity to save money on a new vehicle. Although the credit phaseout date depends on the number of new electric vehicles sold, this program is still an excellent option for lowering the cost of a new car. Congress is currently considering changes to the ev tax credit, including increasing its value, making it refundable, and adding incentives for purchasing union-made electric vehicles.
Planning to purchase an EV? Checkout the most affordable EVs here.
Disclaimer: We (electricvehiclepedia.com) are not tax advisors, and we intend to provide the above information to help you make an informed decision related to EV tax credit. Kindly consult your tax advisor for any tax advice about your specific situation.