After months of negotiations and a lot of idea-making, President Biden and his party appear to have a consensus on a massive social spending bill. And included in what the White House calls the Build Back Better framework is an EV tax credit increase of $5,000, for a total of $12,500. Read on for the latest details in our full EV tax credit explainer.
Will the EV tax credit amount increase?
As of Oct. 28, it looks like the answer is yes. President Biden’s Build Back Better framework includes a $12,500 EV tax credit, up from today’s $7,500 available to qualifying cars and buyers. Its inclusion comes as the framework sheds multiple other elements to compromise with various Democrats in the president’s party.
The finer details aren’t available yet, but the White House’s announcement highlights floated elements from past negotiations. To qualify, automakers will need to build the EV in the US and with union labor. It’s not clear if the bonus credits will be split as we heard in the past ($2,500 for US assembly and another $2,500 for a union workforce). The White House simply said so far, “the framework’s electric vehicle tax credit will lower the cost of an electric vehicle that is made in America with American materials and union labor by $12,500 for a middle-class family.” Crucially, that would disqualify Tesla for at least part of the tax credit boost, and even US automakers building EVs outside of the country, such as Ford’s situation with the Mustang Mach-E.
The president is keen to , and this push comes as part of a proposed $555 billion investment into actions to combat climate change. Now, we’ll have to wait and see if Democrats do officially sign onto the package to pass it.
What is the EV tax credit?
Internal Revenue Code Section 30D provides a tax credit to any person who purchased a qualifying EV during the year. It includes passenger vehicles and light-duty trucks. The credit first came to life with the Energy Improvement and Extension Act of 2008, and amendments came with the American Recovery and Reinvestment Act of 2009. The latter really gave us the tax credits as we know them today.
The credit provides up to $7,500 in a tax credit when you claim an EV purchase on taxes filed for the year you acquired the vehicle. So, if you bought an EV this year, in 2021, you would claim the purchase when filing your 2021 taxes next year.
What if I owe money on my taxes when claiming the credit?
This is the best case scenario, actually. The EV tax credit is a nonrefundable credit. In other words, the government does not cut you a check for the balance. So, say you owed the federal government $10,000 in taxes when filing your 2021 taxes. Let’s also say you purchased a in 2021, which is eligible for the full $7,500 credit amount. Your federal tax balance would then fall to $2,500 owed. If you owed under $7,500, the EV tax credit would wipe that away entirely to a $0 balance, even if it takes care of the tax bill and then some. Essentially, purchasing an EV can wipe away tax bills very well. It does not, however, put cash directly into your pocket. Keep that in mind if you’re someone who typically receives a federal refund when filing taxes.
Are there federal subsidies for an EV?
Biden’s proposed American Jobs Plan included $100 billion in subsidies for EV buyers, if passed. However, on June 24, the president agreed to a that does not include these subsidies. However, after Senate Democrats passed a $3.5 trillion budget blueprint, House Democrats called for EV subsidies to be included in any final legislation. The proposal calls for $160 billion to fund subsidies and purchase incentives, EV charging infrastructure funding, EV manufacturing incentives, federal EV procurement requirements, and incentives to electrify heavy-duty commercial fleets.
Do EV tax credits count for used electric cars?
Like leasing an EV, buying a used electric car also does not allow you to claim the traditional EV tax credit in any way. However, a new bill titled the Affordable EVs for Working Families Act may change that. The legislation would provide up to $2,500 back for an individual filing their taxes and claiming a used EV purchase. For individuals, the $2,500 starts to phase out on income of $75,000 per year; those filing jointly would see the $2,500 sunset when reporting $150,000-plus worth of income. According to the bill, a used EV would need to be at least two years old and cost under $25,000 to qualify for the $2,500 back. If passed, it could provide another option for those priced out of a new EV.
How do I get the full $7,500 tax credit today?
The Internal Revenue Service’s is how you calculate how much money back you’ll receive, which you’ll need to fill out and file with your taxes. Every vehicle with a plug earns a minimum of $2,500 from the EV tax credit — that includes a plug-in hybrid, not just a totally battery-electric vehicle. The vehicle must include at least 5 kilowatt-hours worth of power from its onboard battery. However, the government adds money to the credit for each additional kWh worth of energy packed into a battery. For every extra kWh, the tax credit increases by $417. This is where the dollar figures can shift around since it depends on the vehicle, not your finances.
For example, a Kia Niro plug-in hybrid is eligible for $4,543 from the tax credit, due to its battery size. PHEVs often have smaller batteries than EVs, since they share powertrain efforts with an internal-combustion engine. But, the Kia Niro EV is eligible for the full $7,500 tax credit because of its larger battery size. The government caps the credit at $7,500 maximum. Even for EVs with giant batteries, polskinetwork they aren’t candidates for more money. In most cases, pure EVs are the target cars for the total cash back from the tax credit.
Why can’t I claim the EV tax credit for my Tesla?
Tesla is by far the largest EV maker in the US today. However, those who purchase an EV from the automaker will not be eligible to claim the car on their taxes. That’s because the current law for the credits phases them out after a particular automaker sells over 200,000 qualifying vehicles. In Tesla’s case, it , leaving no additional tax credits to take advantage of. The same goes for . A Chevy, GMC, Buick or Cadillac EV is not eligible for the EV tax credit as of today. The automakers continue to lobby for new legislation to make credits available to them once again.
Can I lease an EV and claim the tax credit?
Unfortunately, there is no tax credit if you decide to lease a new electric vehicle. Instead, the tax credit actually goes back to the automaker or lender financing the leased vehicle. So, to actually earn the tax credit benefit, you need to purchase an EV — not lease one.
What are the state EV credits and incentives?
Many states and even local governments looking to speed up EV adoption rates offer their own incentives. California is a leader in incentivizing EV purchases with a direct consumer rebate up to $4,500, for example, through the . There is currently a waitlist for application, however. Colorado, Washington and New England states also offer some generous state incentives that you can combine with the federal EV tax credit. Even your local utility company may subsidize an EV purchase.