Can You Still Get a Tax Credit for an Electric Car?

Quick Answer

Federal tax credits of up to $7,500 are available for many electric and plug-in hybrid vehicles. Some popular models, including cars from Tesla and General Motors, aren’t eligible, so EV buyers should check first before making the switch.

A woman wearing a green dress uses her phone while her electric car charges next to her.

Do soaring gas prices have you wishing you drove an electric vehicle? If so, federal tax credits may help make that wish a reality.

The qualified plug-in electric drive motor vehicle credit provides up to $7,500 in nonrefundable tax credits on your federal tax return. No question, $7,500 goes a long way toward bringing down the price of an electric car. But there is a hitch: As of 2022, some of the most popular electric vehicles are no longer eligible for tax credits and some models qualify for significantly less than $7,500.

You may still be able to get a tax credit for buying an electric or plug-in hybrid car in 2022, but it pays to understand the limitations. For details, read on.

Is the Electric Vehicle Credit Still Available?

The qualified plug-in electric drive motor vehicle credit is still available in 2022. It applies to qualifying new electric and plug-in hybrid passenger vehicles and light trucks. The credit is equal to $2,500 plus $417 for every kilowatt hour of battery capacity in excess of four kilowatt hours—up to $7,500 in total credits. For the 2022 model year, the U.S. Department of Energy lists about 80 models from 21 manufacturers that qualify for full or partial federal tax credits.

Only vehicles from manufacturers that have sold less than 200,000 qualifying vehicles are eligible for the tax credit. That means some of the most popular electric vehicles from Tesla and General Motors are notably excluded from tax credit eligibility. Toyota passed the 200,000-vehicle threshold in July 2022. As a result, credits are expected to begin phasing out for Toyota vehicles in October of 2022, dropping to 50% for the first two quarters and 25% for the next two quarters after that.

As sales of electric and alternative fuel vehicles rise, more manufacturers may inch closer to the 200,000-vehicle mark. According to Experian data, registrations of EVs in the U.S. shot up 60% in the first quarter of 2022, even as overall new car registrations declined 18%. Sooner could be better than later if you want to switch to an EV and grab the maximum tax available credit.

How Do Electric Vehicle Tax Credits Work?

Claiming electric vehicle tax credits is easy but you'll need to do a bit of legwork. Here are the basic steps:

Check Your Vehicle's Eligibility

You can check the list of qualifying vehicles and their eligible credits before you buy. While tax credits shouldn't necessarily be the deciding factor in which vehicle you purchase, it could be a useful tiebreaker if you can't make up your mind.

Work Out Your Financing

While electric vehicle tax credits can be substantial, they don't provide cash in hand. You'll claim your dollar-for-dollar tax credit when you file your taxes, which means it won't be available to help with your down payment. This tax credit is available in the year you purchase the car only, so you'll need to work out monthly payments you can afford over the life of the car loan.

If you're planning to lease, the tax credit goes to your dealer and not to you. The credit may still work in your favor, however. Ask the dealer how the credit might factor into your lease terms and whether you can use it to lower your monthly lease payment.

Claim Your Credit At Tax Time

File IRS Form 8936 with your tax return to claim your credit. Note that this credit is nonrefundable, meaning you won't receive more in credit than you owe in taxes. If your overall tax bill for the year is $5,500, you can't claim more than $5,500 in EV credit even if your vehicle qualifies. File your sales documents with your tax return in case you're audited.

Do Electric and Hybrid Cars Really Save You Money?

Switching to a plug-in hybrid or electric car can help you break up with the gas pump—or, in the case of plug-in hybrids, minimize an expensive relationship. But fuel costs are only part of the picture. To help figure out whether an electric or plug-in hybrid car will save you money, consider multiple factors:

  • The cost of the car, including any tax breaks: Estimate your monthly payments as well as the total cost of the car to figure out its affordability. Overall, the average monthly loan payment for an EV was $774 in the last quarter of 2021, according to Experian's State of the Automotive Finance Market Report; the average lease payment was $688. There were more affordable options, though. The Nissan LEAF averaged $515 per month for a loan payment and $307 for the average monthly lease. The Hyundai Ioniq came in at $520 with an average monthly lease payment of $219.
  • State and local tax breaks or incentives: Nearly every state provides at least some incentives for EVs and plug-in hybrids. Check with your state government or local utility provider.
  • The cost per mile: Use the U.S. Department of Energy's Vehicle Cost Calculator to estimate fuel costs based on your mileage and typical gas and electricity costs in your state. To illustrate, we compared data on a gas-powered 2022 Mazda CX-30 to the electric 2022 Mazda MX-30 and found that the annual cost per mile for the electric Mazda was 11 cents cheaper than the gas-powered Mazda. This means the electric model was nearly $1,200 cheaper to operate annually than the gas-powered vehicle for a driver in California paying $5 per gallon for gas and driving 11,000 miles per year.
  • Insurance costs: Electric vehicles are typically more expensive to insure than gas-powered vehicles. Check with your insurance company or compare rates online to estimate your costs.
  • Maintenance: Regular maintenance costs are generally lower for electric vehicles, which have fewer moving parts. Still, some of these savings may be offset if you decide to install a fast charging unit in your home.

The Bottom Line

Tax credits can help make the transition to an electric or plug-in hybrid vehicle more affordable. And, though some popular models are no longer eligible for credits, new alternatives exist at a variety of price points.

Even with tax credits, financing a new EV or plug-in hybrid requires planning and good credit. If you're considering a new vehicle purchase or lease, now may be a good time to check your credit score and report for free with Experian. You'll get a clearer picture of your financing options so you can explore the best loan or lease opportunities based on your situation.

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