Electric Cars and Plug-In Hybrids That Qualify for Federal Tax Credits (For Now)

Eligibility is determined based on the individual vehicle, not by model. Automakers submit the vehicle identification numbers (VINs) of eligible vehicles to the IRS, and only those vehicles qualify for a tax credit.

“Most dealerships will apply the tax credit during the purchasing process,” says Alexandra Grose, senior policy counsel at Consumer Reports. “If they don’t, you can submit IRS Form 8936 when filing your taxes. Once you’ve made the purchase, you’re in good shape, as the government cannot block claimed credits retroactively.”

It’s not just the car—it’s also the buyer. To qualify for a new car tax credit, your household can have an adjusted gross income of up to $300,000. If you’re filing as a head of household, you must earn below $225,000, and individual filers will qualify only with income below $150,000. This provision might not apply if a vehicle is leased.

To qualify for a tax credit of up to $7,500, a new EV or eligible plug-in hybrid electric vehicle (PHEV) must meet certain rules: 

• A vehicle’s MSRP must not exceed certain limits, so pricey EVs like the GMC Hummer EV, Lucid Air, and Tesla Model S won’t qualify. For SUVs, pickup trucks, and vans, the threshold is $80,000. For sedans, hatchbacks, wagons, and other vehicles, the credit cuts off at $55,000. Those limits are based on a vehicle’s MSRP, not on its sale price, so a heavily discounted luxury car would not qualify. In addition, the requirement might not apply to some leased vehicles.

• Regardless of how a vehicle is advertised, whether it counts as an SUV, a wagon, or a hatchback is determined by the Environmental Protection Agency and listed on the window sticker. For example, the Ford Mustang Mach-E is listed as a small SUV, but the Chevrolet Bolt EUV is classified as a small station wagon.

• A vehicle must be assembled in North America, including Canada and Mexico, to qualify for any tax credit. That eliminates credits for vehicles assembled elsewhere, including the BMW i4, Hyundai Ioniq 5, Kia EV6, and Toyota bZ4X. (This requirement also might not apply to some leased vehicles.) It doesn’t matter whether a vehicle comes from an Asian or European brand, only where it’s assembled.

• To qualify for a full tax credit, at least 50 percent of a vehicle’s battery components must be produced or assembled in North America. In addition, at least 40 percent of critical minerals used in the battery must be extracted or processed in the U.S. or in a country that’s a U.S. free trade agreement partner, or they must have been made from materials recycled in North America. The new rules will become stricter over time, with requirements increasing by 10 percent each year through 2027. By then, 90 percent of battery components and 80 percent of critical minerals will have to meet the guidelines.

• Car buyers must meet certain income guidelines. Households with an adjusted gross income up to $300,000 will still qualify for the new-car credit, while heads of households must earn below $225,000 and individual filers will qualify only with income below $150,000. This provision might not apply if a vehicle is leased.

• PHEVs with a battery of at least 7 killowatt-hours might qualify for a tax credit as long as they meet all of the other requirements. For PHEVs, the tax credit is calculated either as 15 percent of the vehicle’s MSRP, the dollar difference between the cost of the PHEV and a similarly equipped gas-powered version of the same vehicle, or $7,500—whichever is lowest.

• Starting in 2024, vehicles with battery components from countries that have been designated “foreign entities of concern”—including companies owned by, controlled by, or subject to the jurisdiction or direction of the governments of China, Iran, North Korea, and Russia—are no longer eligible for a tax credit. Automakers are responsible for tracing their supply chains, and the IRS will determine which vehicles meet the criteria.

• There’s no vehicle sales cap on tax credits that made EVs and plug-in hybrids from GM, Tesla, and Toyota ineligible under earlier rules. In years past, once an automaker sold more than 200,000 qualifying vehicles, the credit began to phase out.

Most traditional leases currently qualify for a $7,500 commercial credit that’s not subject to the myriad requirements that must be met to qualify for the consumer new-vehicle credit. 

Here’s how it works: In the case of a lease, the dealer would receive the commercial credit, not the person leasing the vehicle, and it would be up to the dealer to pass those savings on to the consumer, potentially by lowering the vehicle’s purchase price. If a dealer does pass the savings along, drivers could get a tax credit on a car made outside North America, such as the popular Hyundai Ioniq 5. High-income consumers and those who lease a high-cost EV such as a Lucid Air or Tesla Model S would also be able to enjoy the $7,500 credit as long as the dealer passes those savings along. 

If a buyer chooses to do that, however, they should make sure to double-check the dealership’s math. “Make sure to ask for an itemized bill of sale that shows where the tax credit has been applied,” says Gabe Shenhar, associate director of CR’s Auto Test Center. “And make sure the dealership doesn’t mark up the price of the car accordingly.” 

Some automakers, including Hyundai, Lucid, and Polestar, already factor in a full $7,500 tax credit to the lease deals listed on their websites. Learn more about leasing here.

Buyers of used EVs currently get a tax credit for the first time, either $4,000 or 30 percent of the sale price of the vehicle, whichever is lower. But that’s only if they buy a car from an authorized dealership, and only if the vehicle wasn’t previously resold after Aug. 16, 2022. In other words, a one-owner used car sold at a dealership may be eligible for a tax credit, but a two-owner car won’t be. A one-owner car sold privately won’t be eligible, either.

The income threshold is lower for used EV buyers: $150,000 for joint filers, $112,500 for a head of household, and $75,000 for an individual. But the rules about where the car was made or where the battery comes from don’t apply to used vehicles.

This tax credit will also likely disappear if the Trump administration makes its proposed changes.