EV Tax Credits: Driving Electric Vehicle Adoption
The Federal Government has introduced EV tax credits as a part of its efforts to promote the adoption of electric vehicles. The Inflation Reduction Act of 2022 brought about significant changes to the rules governing these tax credits, extending their availability from 2023 to 2032. These credits serve as an effective way to reduce the upfront costs associated with buying an EV, making them more accessible to a broader range of consumers.
Eligibility Criteria
The EV tax credit is available for both personal and business use of qualified electric vehicles. However, to benefit from the tax credit, a person's Adjusted Gross Income (AGI) must not exceed specific modified AGI thresholds, which are as follows:
- $300,000 for Married Filing Jointly (MFJ)
- $225,000 for Head of Household (HOH)
- $150,000 for everyone else
Credit Amounts Based on In-Service Dates
The amount of credit an individual or business can claim depends on the in-service date of the electric vehicle. There are two in-service date ranges considered for EV tax credits:
- Vehicles In Service from 1/1/2023 to 04/17/2023: EVs placed in service during this period may qualify for up to $7,500 in tax credits, although the average credit is likely to be around $3,751. The credit calculation is based on the following components.
- Base credit of $2,500
- Additional $417 credit for a vehicle with at least 7 kilowatt-hours of battery life
- Another $417 credit for a battery with a capacity exceeding 5 kilowatt-hours
- Vehicles In Service 4/18/2023 and After: For EVs placed in service after April 17, 2023, new credit requirements come into effect, focusing on critical mineral and battery components. To qualify for the EV tax credit in this period, the vehicle must meet one of the following two requirements:
- $3,750 credit if the vehicle meets the critical mineral requirement
- Additional $3,750 credit if the vehicle meets the battery component requirement
Additional Vehicle Requirements
To be eligible for the EV tax credit, the vehicle must meet several additional criteria, including:
- Weighing less than 14,000 pounds
- Being manufactured by a qualified manufacturer
- Having final assembly inside the United States
- Being a new vehicle with an MSRP that does not exceed $80,000 for vans, trucks, and sport utility vehicles, and $55,000 for all other vehicles.
Claiming the Credit
Individuals and businesses can claim the credit by filling out Form 8936 while preparing their annual tax return. The credit is non-refundable so if your tax bill is less than the credit amount you will not receive the difference as a refund.
If you are considering purchasing an electric vehicle and want to determine if it qualifies for the tax credit, visit fueleconomy.gov for more information.
Sam Mack, Senior Accountant, Cordell Neher & Company, PLLC
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