From Cars.com —
By Brian Normile —
If you’ve been shopping for or researching an electric vehicle, you’ve almost certainly heard about things like EV tax credits, specifically the federal government’s offer of a federal tax credit worth up to $7,500 if you purchase an eligible electric car. Which EVs are currently eligible? How does the federal tax credit work?
Related: More Electric Car News
What’s Eligible?
Let’s start with currently available eligible vehicles, which must be battery-electric or plug-in hybrids and purchased — not leased — as new vehicles. Here they are in alphabetical order by manufacturer. All-electric vehicles are labeled “EV” and plug-in hybrid electric vehicles are marked “PHEV.”
Two things to note: First, we’ve omitted model years in the list below, as eligibility for the credit doesn’t hinge on model year — only that the qualifying vehicle is a new car. (That said, the list below excludes any nameplates discontinued before the 2021 model year, but if you find one that was never originally sold, it should still qualify for the credit.) Second, the credit is based on battery capacity beyond a standardized minimum, so some plug-in vehicles qualify for lesser amounts. We’ll stick with vehicles that get the full credit below, but the EPA has a full list that includes the lesser credits.
Electric Cars Eligible for the Full $7,500 Tax Credit
- Audi: eTron (EV), eTron Sportback (EV), A7 TFSI e Quattro (PHEV), Q5 TFSI e Quattro (PHEV)
- Bentley: Bentayga Hybrid (PHEV)
- BMW: X5 xDrive45e (PHEV)
- Chrysler: Pacifica Hybrid (PHEV)
- Ford: Mustang Mach-E (EV)
- Honda: Clarity Plug-in Hybrid (PHEV)
- Hyundai: Ioniq EV, Kona EV
- Jaguar: I-Pace (EV)
- Jeep: Wrangler 4xe (PHEV)
- Kia: Niro EV (EV), EV6 (EV)
- Lexus: NX (PHEV)
- Mazda: MX-30 (EV)
- Mercedes-Benz: EQS (EV)
- Mini: Cooper SE Hardtop (EV)
- Nissan: Leaf (EV)
- Polestar: 1 (PHEV), 2 (EV)
- Porsche: Cayenne (PHEV), Panamera (PHEV), Taycan (EV)
- Rivian: R1T (EV)
- Toyota: RAV4 Prime (PHEV)
- Volkswagen: ID.4 (EV)
- Volvo: S60 Recharge (PHEV), S90 Recharge (PHEV), V60 Recharge (PHEV), XC40 Recharge (EV), XC60 Recharge (PHEV), XC90 Recharge (PHEV)
Notice anything missing from that list? If you’re wondering why no Teslas or the recently announced GMC Hummer EV are included, it’s because GM and Tesla vehicles are no longer eligible for the federal tax credit. When a manufacturer sells its 200,000th qualified vehicle, the tax credit is scheduled to wind down, reducing by half to $3,750 and then half again over a period of time before being reduced to nothing. Tesla sold its 200,000th vehicle in 2018, and the credit fully expired at the end of 2019. Another popular EV, the Chevrolet Bolt EV, also is no longer eligible for any tax credit.
The remainder of the list includes practical city cars like the Nissan Leaf, more premium hatches like the Mini Cooper SE Hardtop, and luxury SUVs like the Jaguar I-Pace, Audi eTron and Porsche Taycan. EV buyers can also get a credit on new and upcoming models like the Rivian R1T pickup truck and the Kia EV6 SUV.
Other fully-electric, plug-in and alternative-engine vehicles are eligible for lower tax credits. The full list of eligible EVs is maintained by the Department of Energy, and another list can be found on the IRS website.
How Do I Get the Federal EV Tax Credit?
First, you have to buy a new and eligible EV. After that, you’ll need to fill out IRS Form 8936 to claim your credit of up to $7,500.
Why Do You Keep Saying ‘Up To’?
Because it requires taxpayer eligibility. “The qualified plug-in electric drive motor vehicle credit is a nonrefundable federal tax credit of up to $7,500,” according to Jackie Perlman, principal tax research analyst at H&R Block’s Tax Institute. “The credit reduces your tax liability dollar for dollar. Tax liability means the amount of tax figured on your net taxable income. If the credit is more than your tax liability, you won’t receive the rest of the credit.”
That means, for example, that if you owe $4,000 in taxes before applying the $7,500 credit, your tax bill will be reduced to $0, but you won’t receive that extra $3,500.
The non-refundable tax credit cannot directly increase your tax refund and cannot reduce your tax liability below $0, but it could lead to a higher refund. For example, when tax withholding is added to the equation. In a situation where a taxpayer has a tax liability of $20,000, “If the taxpayer had exactly $20,000 withheld, (he or she)] would be due a refund of $7,500,” says Christine Williamson, CPA, of Clear Advantage Tax & Accounting Solutions.
And what about if tax liability was only $6,000? “If the taxpayer had total withholding of $6,000, (they) would be entitled to a refund of the full $6,000,” Williamson said. “But if the withholding was only $3,000, only $3,000 would be refunded.”
It’s best to consult with a tax professional to see how the tax credit will apply to your specific financial and filing situation.
How Much Do I Need to Make to Have a $7,500 Tax Liability?
We checked with the professionals about this, too. According to Mark Steber, chief tax information officer at Jackson Hewitt, if we assume only a standard deduction and no other credits, a single filer will need an income of $65,964 in 2021, up from $65,627 in 2020, to have $7,500 in tax liability.
Head-of-household filers would need to have made $78,818 in 2021, up from $78,432 in 2020. Married couples filing jointly would need to have combined incomes of $90,920 in 2021, up from $90,592 in 2020. Once again, however, consult with a tax professional about your specific filing situation.
Are There Other Credits?
Yes, usually at the state and local level, though what vehicles are eligible and how much is offered will vary. You can find a list of offers compiled by state here.
What About Used EVs?
Again, there may be state or other local incentives that apply to the purchase of a used EV, but the federal EV tax credit does not.
Can I Lease a New EV and Get the Federal Credit?
Not directly. The credit only applies to new EV purchases, but those savings may be passed on to the lessee via a lower monthly payment.
Tesla’s Model Y and GMC Hummer EV Are New; Why Aren’t They Eligible?
The 200,000 vehicles sold rule applies in total to all qualifying vehicles sold by a manufacturer, not just on a model-by-model basis. Tesla has been selling the Model S, Model X and Model 3 for years already, and GM’s eligibility for any portion of the tax credit ended March 31, 2020.
Are Any Other Manufacturers Close to Having the Credit Phase Out?
Not especially. It will likely be several years before Nissan, the next closest manufacturer, reaches the 200,000 vehicles sold threshold, though the introduction of the all-electric Ariya SUV in 2021 may accelerate that timeline.
A potential dark horse in this race is Volvo, which is making an aggressive push to electrify its lineup, as is Volkswagen; both, however, are significantly far away from selling 200,000 qualifying vehicles.
Should You Bank on the EV Tax Credit?
According to Steber, the federal EV tax credit can prove to be a tangible benefit, but it shouldn’t be the main driver of the decision to go electric. Shoppers also need to do their research to understand all the costs and stipulations of the benefits.
“People shouldn’t make a big life decision based on the possible tax credit in deduction — from when to get married, which state to live in and how many children to have,” Steber told Cars.com. “That also applies to what type of vehicle someone should own. … There are many tools that exist online and at IRS.gov to better understand electric vehicle tax credits, the (credit) amount per vehicle and other qualifying rules and requirements.
It’s important that taxpayers do some research ahead of their purchase. It’s also a great idea to do a pro forma tax estimate to range their tax liability and possible credit use.”
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