Electric vehicles are no longer only a great car option for climate-conscious drivers. The EV market has dramatically grown over the past couple of years, and these days EVs range widely in luxury, style and price. But driving electric can also come with additional money-saving perks. The electric car tax credit is a financial incentive given to those who purchase an electric vehicle and depending on your home state can save you thousands.
EV fast facts
The easiest way to see how much the market has grown is to look at recent EV information.
- 3.47 percent of new registrations in 2021 were electric vehicles (Experian).
- California has the highest percentage of new EV registrations in 2021 with 35.3 percent (Experian).
- Luxury brands make up 78.7 percent of new registrations (Experian).
- There were 10 million EVs on the road in 2021 (S&P Global).
- The state of California has the highest number of charging stations with 13,715, followed by New York, Florida and Texas (U.S. Department of Energy).
What is the EV tax credit?
The EV tax credit is a federal incentive built to encourage drivers to purchase an electric vehicle. This incentive is not a check you receive in the mail following a vehicle purchase, but rather a tax credit worth $7,500 that you become eligible for. This credit applies to all electric and plug-in vehicles, but specific credit amounts can be found via the U.S. Department of Energy’s website, fueleconomy.org.
How to qualify
To qualify for available incentives, your vehicle must meet certain specifications, including:
- Have been purchased after December 31, 2009.
- Have a traction battery.
- Hold a battery capacity of at least four kilowatt hours (kWh).
- Use an external plug-in recharge source.
- Hold a weight rating of up to 14,000 pounds.
- Meet emissions standards.
It is also important to remember that purchasing the vehicle alone does not ensure that you get the tax credit. You must file Form 8936 with the IRS.
Do leased vehicles qualify?
The tax credit does not apply to those leasing electric vehicles. Instead, that money will go to the lessor. But this still can lower a monthly payment — if the lessor chooses to factor that incentive into your lease agreement. Mention this during negotiation to try and save money.
Will the federal EV tax credit always be around?
It is likely that the credit will be around indefinitely, especially with increased pushes for more climate-aware vehicles. But the available vehicles are constantly shifting. This is due to the phase-out structure of tax credits.
When a manufacturer hits a certain number of credits, those vehicles will no longer be eligible. This cap ranges depending on the vehicle manufacturer, so it is important to check if the vehicle you intend to purchase is still available for credit.
Can a household receive multiple EV tax credits?
If two members of the same household purchase electric vehicles for themselves, they will be able to separately claim the credit for their individual cars. If the two buy an EV together, the credit may only be claimed once.
Income and the EV tax credit
Any driver who submits the necessary information for a qualifying vehicle using Form 8936 may be eligible for an EV tax credit. But the type and amount of income that you receive can affect what tax credits you receive.
State and local EV tax credits and incentives
Unfortunately, not every state offers EV tax credits and incentives. So, before you set out to buy a charging station for your garage, determine how much you can save in your home state.
EV tax credits by vehicle brand
Here are some specific EV tax credits offered by vehicle brands. Just as each state differs, consider the benefits to one vehicle brand over another.
|Vehicle brand||Available credit|
|Audi||$4,502 to $7,500|
|BMW||$3,793 to $7,500|
|Chevrolet||No longer eligible|
|Ford||$4,007 to $7,500|
|Honda||$3,626 to $7,500|
|Hyundai||$4,543 to $7,500|
|Jaguar/Land Rover||$6,295 to $7,500|
|Kia||$4,543 to $7,500|
|Mercedes||$3,501 to $7,500|
|Mitsubishi||$5,836 to $7,500|
|Porsche||$3,667 to $7,500|
|Tesla||No longer eligible|
|Toyota||$2,500 to $7,500|
|Volvo||$5,002 to $7,500|
Information gathered from irs.gov
Making the decision to buy an EV
Just as with buying a traditional gas vehicle, deciding to dive into the world of electric vehicle buying requires questioning several factors, such as cost, size and practicality. But buying an EV takes extra consideration. Here are some questions to ask yourself before signing off on an electric vehicle.
- Is there charging available in my area? Before deciding to purchase an EV, it is important to confirm that there are available charging stations in your area. Use resources like those offered through EVgo to explore options prior to purchasing.
- What is the vehicle range? You will need to confirm that the range of your new vehicle fits with your typical driving routine — and any trips you might be planning.
- What is the expected vehicle maintenance? While you will need to set aside some separate cash for service checks, you won’t have to worry about costs from oil changes or other emissions equipment.
- How much is EV insurance? The cost of EV insurance ranges so best to research and determine which lender fits best with your needs. Check out Bankrate’s guide to electric vehicle insurance.
- Should I lease an EV? Consider leasing over buying if you are able to find beneficial manufacturer incentives or if you prefer to change your vehicle every few years.
- Should I buy new or used? Similar to leasing versus purchasing, consider available incentives in terms of the year of the vehicles available in your budget.
The future of EV tax credits
Electric vehicles are still some of the most expensive on the market, and until more are produced, they will predictably stay at a steeper price point. But because manufacturers are making green vehicles a priority, and the government is looking to reward that, the tax credit likely won’t be leaving anytime soon. And if you have been interested in going green for a while, now might be a good time to act.
This is especially true following President Biden’s August 2021 executive order stating that half of all new vehicles sold in the U.S. should be electric by 2030. While that is quite a steep percentage jump from today, you may be able to take advantage of the current surge of electric car options and save extra money through an available tax credit.
The bottom line
If the time to purchase your new set of wheels is upon you, consider buying an electric vehicle to benefit from the EV tax credit. When it comes time to find financing and insurance be sure to compare rates and differing costs for buying EV over traditional.