Note: Section 13401 of The Inflation Reduction Act of 2022 (H.R. 5376) modified this tax credit for electric vehicles place into service after December 31, 2022.
Vehicles placed into service prior to January 1, 2023:
The federal government provides a tax credit for the purchase of a new all electric or plug-in hybrid electric vehicle. To qualify, the vehicle must be made by a manufacturer, have a gross vehicle weight rating of not more than 14,000 pounds, and be propelled to a significant extent by an electric motor which draws electricity from a battery which has a capacity of at least 4 kilowatt-hours (kWh) and is capable of being recharged from an external source.
The credit has a base value of $2,500, and an additional value based on the capacity of the battery. The capacity-based credit is $417 for each kWh of capacity in excess of 4 kWh, up to a combined maximum tax credit of $7,500. The credit will begin to be phased out for each manufacturer in the second quarter following the calendar quarter in which a minimum of 200,000 qualified vehicles have been sold by that manufacturer for use in the United States.
Vehicles placed into service after December 31, 2022 and before January 1, 2033:
Qualifying electric vehicles can receive a total tax credit of $7,500 if certain component sourcing requirements are met; $3,750 for critical minerals and $3,750 for battery components. Additionally, the final assembly of vehicles must take place in North America to be eligible, and beginning in 2025 no percentage of the material used in the vehicle’s battery can be extracted or processed in or by an entity of foreign concern as defined in 42 USC 18741 (a)(5).
To be eligible, sedans must have a manufacturer’s suggested retail price of $55,000 or less; and vans, SUV, and pick-up trucks must have a manufacturer’s suggested retail price of $80,000 or less. The credit is not available for taxpayers with a modified adjusted gross income exceeding: $300,000 for a joint filing, $225,000 for a head of household, or $150,000 for a single filing.
Qualifying electric vehicles can receive a tax credit of $3,750 if their batteries meet the percentages specified below for 1) critical minerals being extracted and processed in the United States or another country with which the United States has a free trade agreement, or 2) being recycled in North America.
- 2023: 40%
- 2024: 50%
- 2025: 60%
- 2026: 70%
- 2027-2032: 80%
Qualifying electric vehicles can receive an additional tax credit of $3,750 for meeting the percentages specified below for battery components being manufactured and assembled in North America.
- 2023: 50%
- 2024-2025: 60%
- 2026: 70%
- 2027: 80%
- 2028: 90%
- 2028-2032: 100%
The Inflation Reduction Act also established a process through which the vehicle purchaser can transfer the credit to the dealer in exchange for either cash or a partial payment or down payment for the purchase of the vehicle.