How Electric Vehicle Tax Credits and Rebates Work (2024)

By: John O'Dell

Car Buying, Trends

5 minutes reading

Share this article:

Confused about the wide range of electric vehicle EV tax credits and rebates? Here, we’ll explain how these credits and rebates work and how to get the best deal.

The new year brings some significant changes to the federal clean vehicles tax credit program. New manufacturing restrictions make it harder — temporarily, at least — for some electric vehicles (EVs) to qualify. But in 2024, it is possible for the first time to use the credit to help with the down payment on an eligible model.

Even if your next vehicle doesn’t qualify for a federal credit, there still are plenty of great reasons to go electric, from spending less on gas to reducing your carbon footprint. And to encourage more buyers to switch to EVs, there are a number of state and local EV incentive programs in addition to the federal tax credit.

How Federal Electric Vehicle (EV) Tax Credits Work

When you buy an electric or plug-in hybrid vehicle (PHEV), it may qualify for a federal tax credit if its final assembly was in North America and it meets other restrictions, such as where the batteries were made and where their components came from.

Eligible electrified vehicles must also meet cost caps: Passenger cars cannot have an MSRP in excess of $55,000 and pickup trucks, vans, and SUVs cannot exceed an MSRP of $80,000.

The MSRP, which is listed on the official window sticker, is the manufacturer’s suggested retail price plus the price of any options or equipment added before the vehicle was delivered to the dealer. It does not include items added by the dealer, and the vehicle’s actual sales price can be higher or lower than the MSRP without affecting tax credit eligibility.

Buyers themselves must meet an income-based eligibility requirement as well. And don’t think about fibbing; the IRS will let you use the current or previous year’s modified adjusted gross income, but if you understate the amount in order to qualify, you’ll be on the hook come tax time for the entire amount of the credit you received.

Currently, a buyer’s modified adjusted gross income cannot exceed $150,000 for an individual, $225,000 for head of household, and $300,000 for those who file joint returns. If your reported annual income is below these thresholds and your new EV purchase meets the requirements, you should get some level of tax credit.

As of 2024, buyers can now choose whether to use the EV credit to reduce their income tax liability, as before, or to make use of a new “point-of-sale” provision that lets them transfer the credit to a participating new-car dealer and thereby reduce the purchase price. Most dealers participate in the plan.

While taking a tax credit doesn’t translate into direct savings off the purchase price, the “point-of-sale” program in this year’s new rules for EV purchases allow participating dealerships to directly apply an eligible buyer’s tax credit to the purchase of the vehicle for an immediate discount.

Previously, the credit in the past couldn’t exceed a buyer’s actual tax liability for that year; for example, if you only owed $3,000 in federal income taxes, for instance, then that’s all the credit you could claim. However, the new rules for point-of-sale transactions allow buyers to claim the full amount regardless of their actual tax liability.

How Much is the Federal EV Tax Credit Worth?

So, how much is the EV federal tax credit worth? Battery-electric and fuel-cell EVs and plug-in hybrids are all eligible, presuming they meet requirements about vehicle cost, place of manufacture, and origin of battery minerals and other battery components. Those that meet the requirements can qualify for a credit of up to $7,500.

How About Leased EVs?

Those who choose to lease a new EV or PHEV can benefit from the tax credit, regardless of where the car was built or where its battery materials came from. That’s because the IRS ruled in late 2022 that leased vehicles fall under the far more lenient tax credit rules for commercial or fleet vehicles.

The leasing entity — usually a new-car dealer or the carmaker’s captive finance arm — actually receives the credit as the vehicle’s first purchaser and has to agree to pass it on to its customers, usually by reducing lease payments. Fortunately, almost all dealers are doing so. Still, it is best to check before signing the paperwork

Those who lease also are exempt from price and income cap requirements.

Are EV Chargers Eligible for a Rebate?

The federal rules also provide for a 30% tax credit, up to $1,000, against the cost of purchasing and installing a home EV charging station. A home solar energy system to power that charger also can qualify for a 30% tax credit.

How State Electric Vehicle Rebates Work

In addition to federal tax credits, many states offer rebates when you purchase or lease an electric vehicle. And state eligibility rules typically are not as onerous as the federal rules. No state, for instance, limits eligibility to electrified vehicles assembled in North America, although some do figure in your adjusted gross income.

Incentive programs vary by state, but if you live in a state that has one, you can expect to receive a rebate of $500 to $5,000 for your purchase or lease deal. Some states also offer cash rebates or tax credits to offset the cost of home EV chargers and installation.

Your state may provide owners non-cash incentives as well. Some offer carpool or high-occupancy vehicle (HOV) lane access, which has always been one of the best reasons to choose an electric vehicle. All states also exempt EVs from testing for emissions, which makes sense since electric vehicles don’t produce any.

Not sure what your state offers? The U.S. Department of Energy has a helpful tool you can use to find all the latest state incentives for electric vehicles. TrueCar’s Electric Vehicle Hub also has a ZIP-code based incentive tool that you can use to find the latest rebates near you.

And, for a clearer estimate of your EV’s cost, you can always reach out to the dealership to find out how incentives will affect your purchase or lease.

What About Utility Rebates?

Your utility company may also offer rebates when you buy or lease a new electric vehicle. The exact amount will vary, along with the fine print specifying how to receive the rebate. But when you combine federal tax credits, state rebates, and utility rebates, the benefits really start to stack up.

Homeowners may also qualify for rebates from their utility company when they install a home charging station and even for installing a solar electric system. A few states also offer discounted electricity rates for EV charging. These incentives are in addition to a separate federal tax credit, where applicable, of 30% of the cost of buying and installing a home charger (up to $1,000), as well as a 30% credit for installing home solar energy systems.

How to Claim a Federal EV Tax Credit on Your Annual Return

Claiming your EV federal tax credit is a fairly straightforward process. Before you buy an EV, assess your tax situation and ensure that you’ll be able to claim the federal tax credit. Then, decide on the car you want and find out if the automaker has EV tax credits available for buyers.

After you buy your car, the manufacturer will send you a certificate verifying that the vehicle qualifies for the federal tax credit. Use the information included in that certificate to fill out Form 8936, which you’ll use to complete Form 1040. Submit both forms when you file your income tax return.

How to Apply a Federal EV Tax Credit at the Point of Sale

First, make sure your adjusted gross annual income doesn’t exceed the federal cap. You have the option of using your prior year’s income or an estimate of your current year’s income. Next, make sure the dealer is participating in the point-of-sale program (the dealership must register with the IRS to do so) and that the vehicle’s MSRP doesn’t exceed the federal caps of $55,000 for cars and $80,000 for pickups, vans, and SUVs.

The MSRP is defined as the retail price set by the manufacturer plus the price of any options or equipment added before the vehicle is delivered to the dealer. It doesn’t include equipment added at the dealership. The actual sales price can be higher or lower than the MSRP without affecting tax credit eligibility.

If you clear those hurdles, tell the dealer how much of the EV tax credit you wish to apply to the purchase price. The dealership will issue you a document called a “seller report” or “time of sale report” that includes the vehicle identification number, the vehicle’s battery capacity, the date of sale, and the sales price (remember, the tax credit is based on the MSRP, not the actual sales price), the maximum tax credit allowed for the vehicle being purchased, and the amount of that credit being applied to the purchase. The report must be given to the buyer no later than the date of the sale.

Are Electric Vehicle Tax Credits Refundable?

The federal electric vehicle tax credit is non-refundable, meaning it can reduce your tax liability for the year you purchase your car, but you won’t get the excess as a refund if the credit is worth more than what you owe.

But if you transfer the credit to a dealership and take the value of the credit at the time you make the purchase, you’ll get the full amount for which the vehicle is eligible. That means, for instance, that if you bought an EV eligible for the full $7,500 tax credit and your tax bill for that year is only $6,500, you don’t have to give back the extra $1,000.

State and local tax credits still must be claimed when you file your return for the year, and whether they are refundable depends on individual state tax rules. State and local cash rebates usually are paid directly — often after the purchase is made and the vehicle is registered. In states that tax rebates, they must be shown as income at the end of the year.

In any event, you may want to consult a tax specialist before you buy an electric vehicle.

Are State and Local EV Rebates Taxable?

Some states, such as New York, Vermont, and Connecticut, may classify rebates as taxable income. Others, like California, do not. Everyone’s situation is different, and it’s always a good idea to check your local state regulations. Once again, consider consulting an accountant if you have any questions about how to correctly file your tax return forms.

The Best Electric Cars

Thinking of going electric? It’s the perfect time to make the switch. We’ve rounded up some of the best electric vehicles that qualify for the federal tax credit or state and local credits and rebates when purchased new. If you’re just starting your EV adventure, there are more cars available as both gas and electric models than you might think.

Today’s electric vehicles go farther than ever as technology and kilowatt hours of battery capacity continue to improve. Automakers are also hard at work developing all-new electric vehicles and paving the way for EV SUVs and trucks. Teslas still dominate the market, but it’s safe to say that EV options are expanding with every year, from the Ford Mustang Mach-E to General Motors’ Hummer EV.

For a deeper dive into the world of electric vehicles, be sure to check out our EV buying guide.

When you’re ready to buy, you can use TrueCar to shop and get a personalized offer from a certified dealer. Until then, keep an eye out for the latest electric vehicle news and updates from the TrueCar blog.

This article is for informational purposes only and is not intended to substitute for professional tax advice.

Share this article:


Car BuyingElectric VehiclesEVGreen VehiclesIncentivessavings

How Electric Vehicle Tax Credits and Rebates Work (2024)


How does EV tax credit work if I get a refund? ›

The electric vehicle tax credit, or the EV credit, is a nonrefundable tax credit offered to taxpayers who purchase qualifying electric vehicles or plug-in hybrid vehicles. Nonrefundable tax credits lower your tax liability by the corresponding credit amount but do not result in a refund of any excess credit amount.

How to maximize $7500 EV tax credit? ›

The best way to get the biggest EV tax credit is to buy a new electric vehicle. But many new EVs don't qualify for the full $7,500 EV tax credit. The IRS has complex rules for where the new EVs must be made (with "final assembly" in North America), and where the EV battery materials can come from.

How to qualify for the full $7500 federal electric vehicle tax credit? ›

Vehicles meeting both the critical mineral and the battery component requirements are eligible for a total tax credit of $7,500. Vans, sport utility vehicles, and pickup trucks must not have an MSRP above $80,000, and all other vehicles may not have an MSRP above $55,000.

How do tax credits work when buying an EV? ›

You may qualify for a credit up to $7,500 under Internal Revenue Code Section 30D if you buy a new, qualified plug-in EV or fuel cell electric vehicle (FCV). The Inflation Reduction Act of 2022 changed the rules for this credit for vehicles purchased from 2023 to 2032.

Why am I not getting the full 7500 EV tax credit? ›

Not all consumers qualify for a tax break, either. The EV tax credit carries some eligibility requirements for consumers. Household income must fall below certain thresholds, for example. The requirements vary for new and used EV purchases.

How does EV tax credit work if I don't owe taxes? ›

If you don't owe any money on your income taxes, the only way to take advantage of the federal EV tax credit on a car is to transfer it to the dealership you're buying from. It then can be applied as a discount on the purchase.

How do I take advantage of EV tax credit? ›

Starting Jan. 1, 2024, if you purchase a new or pre-owned EV, you may be able to effectively lower the vehicle's purchase price by transferring the clean vehicle tax credit to a registered dealer. This credit can be claimed at the time of sale rather than waiting to claim the credit on next year's tax return.

Is the EV tax credit worth it? ›

Key takeaways. The electric vehicle (EV) tax credit is designed to make electric and plug-in hybrid vehicles more affordable to US consumers. The credit is worth up to $7,500 for new vehicles and $4,000 for used vehicles.

How do I claim $7 500 EV tax credit on TurboTax? ›

You can use Form 8936 to claim an electric vehicle tax credit for vehicles purchased and placed into service during the current tax year. Form 8936 is used for qualifying plug-in electric drive motor vehicles, including qualified two-wheeled plug-in electric vehicles.

How many times can I get a federal tax credit for an EV? ›

Each vehicle is eligible for one new EV tax credit and one used EV tax credit.

How will EV tax credit work in 2024? ›

For example, if you took delivery of an EV eligible for a $7500 tax credit in 2024 and your federal tax for that year was $8500, your total tax would be $1000. You would then pay the balance of whatever you owe or elect to be refunded the credit's amount (or apply the refund to the next tax year).

What is the income limit for the EV tax credit? ›

Income Cap for Higher–Income Consumers
Date of Vehicle Purchase/LeaseIncome Cap
On/after February 24, 2022$135,000 for single filers $175,000 for head-of-household $200,000 for joint filers

Does EV tax credit come off purchase price? ›

Under the new guidance, those purchasing a new electric vehicle or plug-in hybrid electric vehicle that qualifies under the Treasury Department's guidelines can either take $7,500 off the sticker price of a new EV or $4,000 off the cost of a used EV.

Will the EV tax credit give me a refund? ›

The federal EV tax credit, worth up to $7,500, is a nonrefundable tax credit that has been an effective way to lower the cost of EV ownership for taxpayers. The Inflation Reduction Act of 2022 changed this tax credit by extending its life through 2032 and expanding it to cover more vehicles.

Do I get cash for EV tax credit? ›

Starting in 2024, you'll receive the cash when you buy your electric car, not when you file your taxes. In this guide, we'll help you determine whether you and the car you buy are eligible to receive the Federal Electric Car Tax Credit of up to $7,500.

Do you have to pay back a refundable tax credit? ›

Some tax credits are refundable. If a taxpayer's tax bill is less than the amount of a refundable credit, they can get the difference back in their refund. Some taxpayers who aren't required to file may still want to do so to claim refundable tax credits. Not all tax credits are refundable, however.

How to claim $7500 EV tax credit TurboTax? ›

You can use Form 8936 to claim an electric vehicle tax credit for vehicles purchased and placed into service during the current tax year. Form 8936 is used for qualifying plug-in electric drive motor vehicles, including qualified two-wheeled plug-in electric vehicles.

How to get EV tax credit if you make too much money? ›

(If your income ends up being too high, you might have to repay the IRS for your EV tax credit. But the IRS will let you qualify based on your modified AGI from the current year you bought your car, or the previous year, whichever is lower.)

Top Articles
Latest Posts
Article information

Author: Corie Satterfield

Last Updated:

Views: 5668

Rating: 4.1 / 5 (62 voted)

Reviews: 85% of readers found this page helpful

Author information

Name: Corie Satterfield

Birthday: 1992-08-19

Address: 850 Benjamin Bridge, Dickinsonchester, CO 68572-0542

Phone: +26813599986666

Job: Sales Manager

Hobby: Table tennis, Soapmaking, Flower arranging, amateur radio, Rock climbing, scrapbook, Horseback riding

Introduction: My name is Corie Satterfield, I am a fancy, perfect, spotless, quaint, fantastic, funny, lucky person who loves writing and wants to share my knowledge and understanding with you.