The new 2023 EV tax credit is here thanks to the Inflation Reduction Act's focus on clean energy. (Signed into law last year by President Biden, the Inflation Reduction Act, i.e., IRA, is massive legislation designed to combat climate change and lower healthcare costs.) But ever since the IRA became law, changes to the EV tax credit, which are supposed to encourage “clean” vehicle use, have turned out to be a mix of good and not-so-good news for some EV industry manufacturers, like Hyundai and Kia, and Tesla. And questions have been raised in the last few months about everything from how EV tax credits will work — for your 2022 taxes and beyond, to which electric vehicles qualify for the up to $7,500 tax break for 2023, and whether those EVs are cars, or SUVs.
But confusion aside, EV tax credits could benefit some consumers, like you. So, it's important to know how the EV tax credit works (for the 2022 tax year, and for 2023), and which vehicles currently qualify for the EV tax credit, according to the IRS. You also need to know how to claim the EV tax credit on your federal return.
EV Tax Credit 2023: How it Works
First, for EVs placed into service after December 31, 2022, the Inflation Reduction Act extended the up to $7,500 EV tax credit for 10 years—until December 2032. The tax credit is taken in the year that you take delivery of the EV. The exact amount of the credit is based on a calculation that considers factors like the vehicle’s sourcing and assembly (more on sourcing requirements later).
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Some Used Electric Vehicles Are Eligible: Used EVs (i.e., previously owned clean vehicles that are at least two years old) have a separate tax credit of either up to $4,000 or 30% of the price of the vehicle, whichever is less. However, a previously owned EV can’t qualify if it’s purchased for resale.
Under the IRA, the EV tax credit applies to any “clean vehicle.” So, a hydrogen fuel cell car, for example, or a plug-in hybrid vehicle with 4-7 kilowatt hours of battery capacity, could qualify. Some commercial clean vehicles can also qualify—depending on weight.
Another new rule is that if you’re buying a clean vehicle, you will have the option, beginning in 2024, to take the EV tax credit as a discount at the time you purchase the vehicle.
Essentially, you would be transferring the credit to the dealer, who would be able to lower the price of the vehicle by the amount of the credit. This means that you won’t have to wait until it’s time to file your tax return to benefit from the electric vehicle tax credit.
EV Tax Credit Income Limit
The Inflation Reduction Act also imposes an income limit on who can claim the EV tax credit.
- If you’re single, and your modified adjusted gross income is over $150,000, you won’t qualify for the EV tax credit.
- The EV tax credit income limit for married couples who are filing jointly, is $300,000.
- And, if you file as head of household and make $225,000 or more, you also won’t be able to claim the electric vehicle tax credit.
Which EVs Qualify for the Tax Credit?
Which vehicles qualify for the electric vehicle tax credit is complicated for 2023. Of course, the EV tax credit income limit mean that some high-earning buyers won't be able to claim the credit. But the North American assembly requirement (more on that below), and price caps, also mean that several popular clean vehicles don’t qualify for the EV tax credit.
EV Tax Credit Price Limits. Vans, pickup trucks, and SUVs with a manufacturer’s suggested retail price (MSRP) of more than $80,000, won’t qualify for the credit. For clean cars to qualify for the EV tax credit, the MSRP can’t be more than $55,000.
Also, if you buy a used clean vehicle, it will only qualify for the tax credit if it costs $25,000 or less. And in case you were wondering, “used” or “previously owned” for purposes of the EV tax credit, mean that the car is at least two years old.
The IRS and the Treasury Department have published information designed to help you know whether the vehicle you want to buy will qualify for an EV tax credit under the Inflation Reduction Act. That information includes the Department of Energy’s page on electric vehicles that have final assembly in North America (opens in new tab).
The IRS has also provided answers to frequently asked questions (opens in new tab) about the EV tax credit and which cars qualify. The agency also regularly updates its own list of eligible EVs (opens in new tab) purchased in, or after, 2023. More vehicles will reportedly be added in the coming weeks.
The Department of Transportation also has a tool on its website (opens in new tab) where you can enter the vehicle identification number (VIN) of the electric vehicle you're interested in to determine its eligibility for the EV tax credit. This guidance might help you decide when it’s best (tax-wise) to buy an EV.
SUV EV Classification Change
Additionally, to address some of the ongoing confusion around vehicle classification, the Treasury and the IRS released new guidance (opens in new tab) saying that it will now use criteria based on the Environmental Protection Agency’s (EPA) Fuel Economy Labeling Standard to determine whether a vehicle is a car or an SUV. For automakers and consumers, that means that some SUVs are now eligible for EV tax credit, where they weren't previously.
The new guidance is retroactive to January 1, 2023. So, if you took possession of your EV in January of this year, you can use this new classification to determine whether the vehicle you purchased is eligible for the tax credit.
Keep an eye on the IRS' list of eligible EVs purchased in or after 2023.
How to Get the EV Credit on Cars Bought in 2022
What happens to the EV tax credit for electric vehicles that were purchased in 2022? The Inflation Reduction Act offers some relief for EV buyers who had written, binding sales contracts from 2022 to purchase EVs that will be placed in service (which for IRS purposes means, “delivered”) on or after the IRA became effective.
Essentially, if you purchased an electric vehicle before the IRA became effective (so, before August 16, 2022), and that vehicle is otherwise eligible for the old EV tax credit, you can claim that credit under the rules that applied before the Inflation Reduction Act became law. (That's true even if you didn't take possession of the EV until after that date.)
Also, the North American final assembly requirement doesn't apply before the IRA effective date. But remember: You need to have a written, binding sales contract to substantiate your claim for the EV tax credit.
What About EVs Purchased and Delivered Between August 16, 2022, and December 31, 2022? If you purchased and took possession of your EV between these dates, the rules for claiming the EV tax credit before the IRA became law still apply, except that the final assembly requirement applies.
So, you'll need to check to see (opens in new tab) if the EV you purchased meets the final assembly requirement in the Inflation Reduction Act (i.e., is eligible for the EV tax credit). And for more details from the IRS on new EVs purchased in 2022, or before, visit the IRS website (opens in new tab).
EV Sourcing and Manufacturing Requirements
Before the Inflation Reduction Act, manufacturers that produced more than 200,000 electric vehicles couldn’t qualify for the EV tax credit because it was phased out once the manufacturer reached the 200,000-car cap. The IRA removed that cap, which means that some cars made by manufacturers who exceeded the 200,000 limit (e.g., General Motors, Toyota, and Tesla) will now be eligible to claim the credit. However, to spur domestic production of clean vehicles, the IRA also requires that the final assembly of qualifying clean vehicles occur in North America.
The final assembly requirement became effective as of the day President Biden signed the IRA into law, i.e., August 16 of last year. There is a similar requirement that minerals and other key components (i.e., battery components) that are used to manufacture EVs, also be primarily sourced in North America.
The EU and other countries have expressed concern over the IRA’s manufacturing requirements for EVs. The EU worries that the new law’s requirement that EVs be primarily built and sourced in North America to qualify for the EV tax credit, could have a discriminatory effect on EU manufacturers. Swedish officials and officials from other countries like South Korea, on behalf of electric vehicle industry manufacturers like Kia and Hyundai, have expressed similar concerns.
And while U.S. officials have expressed confidence that concerns regarding EV tax credits can be addressed, most congressional lawmakers don’t seem to have an appetite for changes to the law’s EV sourcing requirements. Although, Sen. Joe Manchin (D-WV), recently proposed legislation to halt implementation of the EV tax credit. Manchin’s view is that the IRS is making the full $7,500 tax credit available for vehicles and manufacturers that haven’t met all of the requirements in the IRA.
And late last year, Sen. Reverend Raphael Warnock (D-Ga.) encouraged the Biden administration to consider flexibility in the implementation of EV tax credit reforms. The Georgia senator proposed the Affordable Electric Vehicles for America Act, which would create a phase-in-period for the IRA's EV sourcing and manufacturing requirements. (It's unclear whether Manchin's or Warnock's proposals will gain any traction in Congress.)
But in any case, if you're in the market for an EV, keep an eye out for more proposed EV tax credit regulations. The IRS expects to release rules for the sourcing requirement in March 2023.
How to Claim the EV Tax Credit
To claim the EV Tax credit, you file IRS Form 8936 with your federal income tax return. To complete the form, you’ll need the VIN for your electric vehicle. Form 8936 is also used to determine your tax credit for some qualified two or three-wheeled plugin EVs.
EV Charger Tax Credit 2023
The Inflation Reduction Act also revives a credit for electric vehicle chargers that previously expired on December 31, 2021. The Alternative Fuel Refueling Property tax credit is extended for ten years — through December 31, 2032.
But the rules for claiming the credit are changed a bit under the Inflation Reduction Act. Essentially, a business that installs an EV charger (and meets certain labor and construction requirements) can still benefit from a tax incentive of up to 30% of the total cost of equipment and installation.
Previously the limit on the amount of the credit was $30,000 (which applies to projects completed before the end of 2022). However, under the Inflation Reduction Act, if you complete the installation project after 2022, the tax credit, per property item, is up to $100,000.
For home EV charging station installations, the tax credit is 30% of the costs of hardware and installation for qualified property, like EV chargers.
Also, beginning this year (2023), the tax credit for business and home installations will apply to other EV charging equipment, like bidirectional (i.e., two-way) charging equipment.
The tax credit is back as President Biden has announced a $900 billion EV charging station investment plan. The plan involves building 100 million EV charging stations in thirty-five states. The Biden administration indicated (opens in new tab) that the approved investment will also span 53,000 miles of national highway.
Other 2023 Tax Credits in the Inflation Reduction Act
The Inflation Reduction Act contains billions of dollars in tax credits and incentives, not just for eligible EVs. Other 2023 tax credits in the IRA that could benefit you involve green home improvements like home solar.
Check out Kiplinger's coverage on the tax incentives in the IRA.
More on tax credits and IRS funding in the Inflation Reduction Act
- Tax Credits in the Inflation Reduction Act: What You Should Know
- Save More on Green Home Improvements Under the Inflation Reduction Act
- Are 87,000 New IRS Agents Coming for Your Tax Dollars?
- Inflation Reduction Act Boosts Obamacare Tax Credit
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