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How Do the Electric Vehicle Tax Credits Work?

Posted 02/23/2023

Federal tax credits for electric vehicles in the United States are complicated, especially with new changes for 2023. Under the current version of the Section 30D Clean Vehicle Credit (CVC), there are specific criteria that both the vehicle and taxpayer must meet. The good news is that there are now tax credits for individuals and businesses that buy or lease a new or used electric vehicle! Learn about the business EV charging tax credit. If you’ve been wondering how all these purchase incentives work, Blink has you covered. First, the easy part:

How do I claim the $7,500 EV tax credit?

The US Department of Energy has issued these steps for claiming the CVC, which may be up to $7,500 on your personal or business taxes:

  • Fill out Form 8936, the Qualified Plug-in Electric Drive Motor Vehicle Credit. You will need:

    • Year, make, and model of the vehicle

    • Vehicle Identification Number (VIN)

    • Date vehicle was placed in service

  • If the vehicle was acquired for personal use: Report the credit from Form 8936 on the appropriate line of your Form 1040 Individual Income Tax Return.

  • If the vehicle was purchased for business use: Report the credit on Form 3800, the General Business Credit.

The tax credit can only be used to reduce the amount of tax you owe. It does not act as a rebate (until 2024). For example, if you end up owing $4,000 on your taxes and you have a $7,500 CVC, the CVC will wipe out your $4,000 tax bill, but you will not receive the $3,500 difference as a refund. You also cannot use that difference for your next tax bill. Now, onto the not-so-easy part:

Which electric vehicles qualify for the Clean Vehicle Credit?

The CVC covers some, but not all, of these types of vehicles:

  • Battery electric vehicles (BEVs) Commonly referred to more simply as “electric vehicles” or EVs, they run 100% on a battery that powers an electric motor. BEVs require the use of a charging cable or EV charging station in order to charge the battery.

  • Plug-in hybrid vehicles (PHEVs) These vehicles have both an electric motor that runs on a battery and an internal combustion engine powered by liquid fuel. They run on battery power until the power is used up and then switch to gasoline, if necessary. PHEVs can refuel at a gas station, charging cable, or EV charging station.

  • Fuel cell electric vehicles (FCEVs) These vehicles use a fuel cell (usually hydrogen gas) to power an electric motor. FCEVs do not require EV charging, but they do require the use of a hydrogen fuel station.

Please note that hybrid vehicles (also known as HEVs), which contain an electric motor and internal combustion engine but cannot plug into a charging station, are not included in the Clean Vehicle Credit. BEVs, PHEVs, and FCEVs are the only vehicles that qualify for the tax credit. Not sure what you own? The Department of Energy’s Federal Tax Credits page, which contains a list of all CVC eligible vehicles. And if you bought an electric car in 2022 or before, you can find a list of vehicle manufacturers and models on the Internal Revenue Service (IRS) website.

If you bought your electric car before 2022

Before it became the CVC, the US federal EV tax credit was known as the Qualified Plug-in Electric Drive Motor Vehicle Credit. The Inflation Reduction Act rebranded the tax credit as the Clean Vehicle Credit, which came into effect August 16, 2022. It covers qualifying vehicles purchased from 2022 to 2032. Even though the new version was introduced in mid-2022, you can still claim a tax credit for EVs in previous tax years. According to the IRS, if you purchased a qualifying vehicle prior to 2022, you may still be able to claim a tax credit by filing an amended return for the tax year when you took possession of the vehicle. For example, if you bought and took possession of a new, qualifying EV in 2018, you can resubmit your 2018 taxes with an amendment stating that you qualified for the CVC, which would be applied to your current taxes. If you bought a new, qualified plug-in electric vehicle (EV) in 2022 or before, the CVC provides:

  • $2,917 for a vehicle with a battery capacity of at least 5 kilowatt hours (kWh)

  • An additional $417 for each kWh of capacity over 5 kWh, to a maximum of $7,500

EVs bought in 2022 before the Inflation Reduction Act

If you purchased a vehicle before August 15, 2022, these are the criteria that the vehicle must meet to be eligible to receive the CVC on your taxes: The vehicle must:

  • Be for your own personal or business use, not for resale

  • Be used primarily in the US

  • Have an external charging source (for EVs or PHEVs)

  • Have a gross vehicle weight rating of less than 14,000 pounds

EVs bought in 2022 after the Inflation Reduction Act

Vehicles purchased between August 16 and December 31, 2022 must meet the above requirements, plus one additional stipulation:

  • Vehicle must have undergone final assembly in North America.

How do I find out if my vehicle was assembled in North America?

Follow these steps to find out if your vehicle qualifies for this assembly requirement:

This tool will tell you whether or not your vehicle was assembled in North America. If you entered into a legally binding contract to purchase a qualifying EV before August 16, 2022, but did not take possession of it until August 16 or after, you are not bound by the North American assembly requirements. In addition, leased vehicles can also receive a $7,500 tax credit without having been assembled in North America.

Vehicle manufacturer sales caps

In the original version of the CVC, the EV tax credit had a sales cap on vehicle manufacturers. Once an automaker sold 200,000 qualifying EVs, the total credit would be gradually phased out. According to the IRS, Ford, General Motors, Tesla, and Toyota all reached the critical sales cap. Therefore if you bought an EV from one of these four manufacturers on or before December 31, 2022, you may not be eligible for the full $7,500 credit. However, with the Inflation Reduction Act, the 200,000 units per manufacturer sales cap has been eliminated for vehicles sold on or after January 1, 2023. Thus, beginning in 2023, if you buy an electric vehicle and meet the other eligibility requirements, you can claim the full credit, regardless of vehicle manufacturer.

If you buy an electric car in 2023 or later

There are important new tax credit rules that took effect  in 2023. Excluding the manufacturer sales cap, the above criteria still apply when claiming the CVC:

  • Be for your own personal or business use, not for resale

  • Be used primarily in the US

  • Have an external charging source (for EVs or PHEVs)

  • Have a gross vehicle weight rating of less than 14,000 pounds

  • Have undergone final assembly in North America

An additional requirement also began in 2023:

  • Vehicles must not exceed a manufacturer suggested retail price (MSRP) of:

    • $80,000 for vans, sport utility vehicles (SUVs) and pickup trucks

    • $55,000 for other vehicles

At the beginning of February, the US Treasury Department ruled that crossover vehicles can be categorized as SUVs to allow them to fall under the higher price point. Some automakers have also reduced their prices to $55,000 so their customers can claim the tax credit.

Who can claim the CVC?

In addition to the vehicle qualifications, taxpayers claiming the EV credit must also meet certain criteria. The IRS says: “Your modified adjusted gross income (AGI) may not exceed:

  • $300,000 for married couples filing jointly

  • $225,000 for heads of households

  • $150,000 for all other filers

“You can use your modified AGI from the year you take delivery of the vehicle or the year before, whichever is less. If your modified AGI is below the threshold in one of the two years, you can claim the credit.”

Upcoming restrictions for the CVC

We’re not done yet. Two more requirements will begin in 2023 for the critical minerals in the EV batteries and the battery components themselves. These proposed criteria are expected to begin in March 2023 when the US Treasury releases its guidance. Once the US Treasury Department issues these new critical mineral and battery component guidelines, the CVC will essentially be split into two portions, which increase every year:

  • Critical mineral requirements - eligible for a tax credit of up to $3,750

  • Battery component requirements - eligible for a tax credit of up to $3,750

Vehicles and taxpayers meeting all of the previously mentioned criteria, must also meet these requirements to be eligible for a total tax credit of up to $7,500. Both the critical mineral and battery component portions of the CVC will change on an annual basis. Here are the criteria proposed by the Treasury Department.

Critical Minerals

To receive the critical minerals portion of the CVC, a certain percentage of the value of the battery’s critical minerals must be either extracted or processed either in the US or a free-trade agreement partner or recycled within North America. This percentage increases annually:

Battery Components

To receive the battery components portion of the CVC, a certain percentage of the value of the vehicle battery’s components must be manufactured or assembled in North America. This percentage increases annually: There are also federal tax credits for used EVs, commercial EVs, and EV charging stations for businesses. Many states and local utilities also offer financial incentives for buying an electric vehicle or installing an EV charging station. To view tax incentives in your state, please visit Blink’s Residential EV Charging Infrastructure Incentives page or Blink’s Commercial EV Charging Infrastructure Incentives page. You can filter both pages by state.  Federal EV tax incentives are ever-changing, and Blink is here to help keep you charged. Already have an EV but need a place to charge? Click here to learn more about Blink's residential EV chargers.

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