What do the EV tax credit changes in the Inflation Reduction Act mean for you?
08.17.2022 - by Alexia Melendez Martineau
What do the EV tax credit changes in the Inflation Reduction Act mean for you?

What the new EV tax credits in the Inflation Reduction Act mean for you

It’s been a big couple of weeks for electric vehicles. You may have heard about the Inflation Reduction Act (IRA) which includes the new federal EV tax credit and has now been signed into law by President Biden. 

The new EV tax credit has spurred confusion among interested consumers. We’d like to help answer what the IRA means for EV consumers over the coming days, weeks and months. If you’re interested in purchasing an EV, there are a few things you need to know.

What are the differences between the current EV tax credit and the new credit? 

The current federal tax credit provides up to $7,500 for the purchase of an electric vehicle. Battery electric vehicles (BEVs) are generally eligible for the full $7,500. Plug-in hybrid vehicles (PHEVs) may be eligible for less, depending on their battery size. Each manufacturer can sell up to 200,000 eligible vehicles under the current credit. Additionally, the current credit can only be claimed on a consumer’s taxes for that year. (Meaning you may not see the benefit of the credit until many months after purchase.) As President Biden signed the IRA into law, the old credit no longer applies in the same way (we dig into more details on that below.)

In contrast, the new $7,500 EV tax credit is split into two equal halves of $3,750. In order to be eligible for the new credit, vehicles and consumers must meet certain requirements: 

  • A vehicle is eligible for one-half of the total credit ($3,750) if the vehicle has battery components that are manufactured or assembled in North America. 
  • To be eligible for the other $3,750, a vehicle must have critical minerals that were extracted or processed in the U.S. or countries with which the U.S. has a free trade agreement, or use critical minerals that were recycled in North America. 
  • Final assembly must take place in North America for a vehicle to be eligible. 
  • Only cars under $55,000 or SUVs, vans, and pickup trucks under $80,000 are eligible for the credit. 
  • On the consumer side, the income cap to be eligible for the credit is $150,000 for single filers, $225,000 for head of household and $300,000 for joint filers.
  • There will be an option to apply the new credit at point of sale starting in 2024.
  • The new credit requirements for battery components and critical minerals will take effect January 1, 2023.

Additionally, the IRA established a used EV tax credit. The used EV tax credit is for $4,000 or up to 30% of the vehicle price (whichever is lower.) The used EV tax credit has a few requirements:

  • The vehicle must be under $25,000.
  • The vehicle model year must be at least 2 years old (based on when the consumer is purchasing the used vehicle.)
  • In order to be eligible, the vehicle must be sold by a dealer. 
  • As with the new EV tax credit, the used EV tax credit has income caps for consumers. The income cap to be eligible for the used EV credit is $75,000 for single filers, $112,500 for head of household and $150,000 for joint filers.
  • The credit can only be applied once per vehicle.  
  • The used EV tax credit will take effect January 1, 2023. 

What does this mean if I’m looking to buy an EV?

The old tax credit is still in effect from now until December 31, 2022. However, some things have changed and the selection of eligible vehicles is smaller than before.

  • The maximum credit amount through the end of 2022 remains $7,500. 
  • In order to be eligible, vehicles must now meet the North American assembly provision. Vehicles must undergo final assembly in North America. Other vehicles are no longer eligible. 
  • Additionally, the manufacturer cap still applies. This means that manufacturers that have already reached the cap will not have eligible vehicles until 2023. This includes Tesla and GM. Toyota is expected to begin its phase out on October 1, 2022, which means that its vehicles would only be eligible for 50% of the credit beginning on that date–and only if they also meet the North American assembly requirements. 
  • The Department of Energy Alternative Fuels Data Center has compiled a list of vehicles that meet the North American assembly requirements under the current credit. This list will continue to be updated as manufacturers submit data and confirm final assembly locations for their vehicle models.
  • See the IRS website for a detailed breakdown of the transition period rules through the end of the year. 
  • Note that existing state and local incentives are unchanged. Visit PlugStar.com for more information on available incentives. 
  • The used EV tax credit will not be available until January 1, 2023.

Starting in 2023

  • The new federal tax credit will be available for eligible vehicles and consumers. As discussed above, the requirements for eligibility are more complex than the current credit and it is unclear right now which vehicles will be eligible. 
  • Some of the requirements, especially the critical minerals requirement, will be difficult for manufacturers to meet in the short-term and it is likely that few vehicles may qualify for the new credit in 2023. 
  • The new credit will be available through 2032 for all manufacturers.
  • The used EV tax credit will also be available for eligible vehicles and consumers.
  • We will provide more detailed guidance on the 2023 credit later, when it is clearer which vehicles will be eligible. 

In short: 

  • If you are considering a Tesla or GM vehicle, they are not eligible for the credit today but some of them may be eligible in 2023. We don’t know yet. 
  • If you are considering a vehicle from any other manufacturer, some models are currently eligible, but whether they remain eligible in 2023 is also still unknown. 

Should you rush out and buy an EV today in order to claim the federal tax credit? Only you can decide that, but hopefully you now have a better sense of what the IRA means for buying an EV over the coming months. As we learn more, we will continue to share helpful information to inform your EV future. 

Disclaimer: Plug In America offers this information as our best interpretation of the IRA and does not guarantee its accuracy or that what we have shared will ensure a consumer will be eligible for any tax benefit.

22 comments on “What do the EV tax credit changes in the Inflation Reduction Act mean for you?”
  1. Dot says:

    This tax credit seems to really limit what vehicles you can purchase. We looked at a Kia EV6 Wind, the dealer added over $16,000 to the sticker price. We walked out.

  2. Ben says:

    Would the tax credit be applicable to vehicles like the Aptera? I recall that the Aptera once got ensnarled in petty regulations as to what constituted a “car” because it had three wheels instead of four.

  3. Brian W says:

    The unfortunate, simple answer is no.

  4. Kelly says:

    Inflation Reduction Act – IRA

  5. Richard W. Ahrens says:

    Do any of these credits apply to leased vehicles?

  6. rEVolutionary says:

    In summary “Clean vehicle” means a plug-in with an electric motor and at least a 7kwh battery. The definition was also expanded to include hydrogen fuel cell vehicles. Regular hybrids don’t count.

  7. Kevin Myers says:

    Looks like I should’ve waited another 6 months to. It my used Fiat 500e. Story of my life…..

  8. Christopher Runa says:

    First of all, I’m a huge EV advocate. Unfortunately, being retired, the tax credits are useless to me. And even though that fact has not deterred me from searching for and EV to purchase, I’ve found that many of the dealers have attached a ‘dealer premium’ of up to $8000 to vehicles eligible for these tax rebates. What’s the sense in that? They tell me it’s supply and demand and I’ll get the money back in tax rebates, which I won’t be able to use. Any suggestions on what to do about these greedy dealers?

  9. Robert Ballou says:

    The rebate was clear and it sold a lot of cars, until the Inflation Reduction Act (IRA) happened. I did not read the pre-IRA rebate details, but it was clear to me that it applied to the purchase of my Kia EV6. Is this pre-IRA a legally binding contract? Are we at risk of losing this rebate?

  10. Jo says:

    Wondering if income limits apply on 2022 purchases of EVs for tax credits.

  11. Jim Poch says:

    Do you have any details on a tax credit for the purchase and installation of an EVSE for a residence/personal use? I only see the commercial details not for consumers at home. Thank you in advance for any information.

  12. Bruce J. Stringer says:

    So, if purchased a Mercedes EQS 580 on 4/4/2022 I will still be eligible for the $7500 tax credit since the purchased occurred prior to the enactment of the new law?

  13. Beth Neerman says:

    From the description you provided, it appears that the new EV tax rebates are less about helping Americans to convert to driving EVs and more about adding new mining jobs (for hazardous materials) in the USA. The available rebates will be much smaller and less likely to get Americans to consider buying an EV. And the environmental damage from the increased domestic mining of the defined minerals will harm the environment while lining the pockets of only a few rich Americans (like Manchin). It’s fairly obvious how Biden got Manchin to sign on to the bill! It sure would nice if we could have a government which put the well-being of the majority of it’s citizens (and hence the protection of a habitable planet) above the greed of the rich elite! We really need to get rid of our country’s bribery system of campaign finance and convert to a 100% publicly funded campaign finance system! So long as corporate greed owns our politicians, we can’t get any of the real government work accomplished in this country!

  14. Saul Valdez says:

    The IRA?

  15. Michàel Spiel says:

    I have ordered a VW id4 model 2022 pro s gradient. I ordered this vehicle in April of 2022 and they’re telling me it now is being produced and will be delivered in September to October. I’m worried that I will not receive the tax credit in full and how do I check on where the battery minerals came from?

  16. Paul Craig says:

    Oh Boy….Does this mean I just lost my tax incentive for the Mini Cooper that I just bought a few months ago?

  17. Bob Hamilton says:

    Good to see the Feds are encouraging EV use. Apparently, however, the team that wrote these EV Regs was the same team that wrote our current tax code. The KISS Principle should be applied. Make it simple to have a real impact!!

  18. Spencer Ralston says:

    The 2nd bullet point under “In short”, you probably meant to say “unknown.” I had thought I read that eligible vehicles ordered in 2021 and 2022 but not delivered until 2023 would be eligible under the current law.

  19. John Howard says:

    Good job! Thanks John Howard 15 The Knolls S. Hadley, MA 01075 413-536-5973 https://johnhowardsolar.org/ NEW

  20. Bob Calafiore says:

    In the new rules that you published that start in 2023, It is not clear what type of car qualifies for either half of the tax credit. Can the tax credit be fully or partially applied to EVs, Hybrids, Hybrid plugins, or even gasoline-powered cars that meet the other requirements

  21. Danna T says:

    This is good news overall, but we ordered an EV from VW almost a year ago and it will finally be available by September. Is this vehicle still eligible for the $7500 since it was ordered and confirmed before the bill was passed and signed?

  22. Jeffrey Derby says:

    Could you please report on the status of EVSE (charger) equipment tax credits? They expired on December 31, 2021. Have they been renewed in the new bill?

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