Federal Incentives

Incentive Amount

The Inflation Reduction Act passed on August 16, 2022 changed eligibility requirements for clean vehicle federal tax credits. Effective on passage, vehicles produced outside North America are no longer eligible for a credit. Additional implementation details, including IRS rules regarding eligibility are anticipated before the end of 2022. The information provided on this page and other Drive Electric Vermont resources contain the current requirements and incentive amounts as best we are are aware. Our vehicle comparison tool has current estimated tax credit amounts for each model, but this information may change depending on IRS rulemakings.

Many formerly eligible vehicles purchased after August 16, 2022 may not be eligible unless the purchaser had a binding purchase agreement in place before that date. Please consult a tax professional if you have questions related to claiming a credit through this program.

Eligibility

Federal tax credits ranging from $2,500-$7,500 are available depending on the vehicle. The credit can only be claimed in the tax year the vehicle was put into service. The annual federal tax liability of the buyer may be a limiting factor in how much benefit you can receive. Many changes to this incentive occurred with the passage of the federal Inflation Reduction Act.

For leased electric vehicles, the federal tax credit is claimed by the leasing company (since they are the owner of the vehicle). The leasing company will usually pass through a portion or all of the benefit to you as part of the lease deal. This may result in a lower down payment and/or lower monthly payments.

2022 Inflation Reduction Act Changes

The Inflation Reduction Act passed on August 16, 2022. Some of the changes to the credit eligibility requirements took effect on passage while others will be phased in over a period of years. It will likely be several months before all the rules around individual vehicle eligibility are finalized. Many additional conditions will take effect for EVs purchased after December 31, 2022. Additional information on these changes is included below. We will keep this resource updated as additional guidance becomes available.

  1. Manufacturing Origin - Effective on passage, vehicles must have final assembly completed in North America to be eligible. This eliminated many popular EV models from the tax credit, although some may return in a few years if their manufacturing moves to North America. This US Dept of Energy resource contains information on EVs currently manufactured in North America. Some automakers are producing their EVs in factories in North America and outside North America. For example, VW makes the ID.4 in Germany and Tennessee. Only vehicles with final assembly in North America will be eligible for the credit. The IRS recommends using the National Highway Traffic Safety Administration's (NHTSA) Vehicle Identification Number (VIN) decoder to determine the final assembly location for a particular vehicle if you intend to claim a credit.
  2. Extension of Caps - The bill eliminated the 200,000 USA EV sales phase-out trigger for vehicles put into service starting January 1, 2023. Instead, all EV purchases meeting eligibility requirements will be eligible for a tax credit through December 31, 2032. This means Tesla and General Motors vehicles that are currently ineligible may return to eligibility for purchases made starting in 2023 (provided all the other eligibility requirements are met). It appears the Tesla Model 3, Chevrolet Bolt and Bolt EUV may qualify for $7,500 tax credits starting January 1, 2023.
  3. Transferable to Dealers - Starting January 2024, purchasers will be able to work through a participating dealership to have the value of the credit passed through at the point of sale. This could be especially helpful for EV purchasers with limited tax liability who previously may have been unable to take full advantage of the incentive previously.
  4. Income Eligibility - Non-commercial purchasers must meet Adjusted Gross Income (AGI) eligibility requirements of $150,000 or less for individual filers or $300,000 or less for joint filers starting January 1, 2023.
  5. Price Caps - EVs must have a Manufacturer's Suggested Retail Price (MSRP) of $55,000 or less for passenger cars or $85,000 for SUVs, pick-up trucks and vans to be eligible on January 1, 2023.
  6. Amount of the Credit - Rather than basing the value of the credit on the amount of energy the EV battery can store as was previously done, the new provisions will require a minimum battery size of 7 kWh and then $3,750 of the credit will be determined by whether enough of the minerals used in the battery were sourced from the USA or a free trade partner and another $3,750 will be based on whether the value of the battery components meets requirements for North American sourcing. Additional rules detailing how the IRS will phase in these requirements are expected by the end of 2022, with changes to take effect on January 1, 2023.
  7. Used EV Credit - The bill also included a new incentive that would offer 30%, up to $4,000 toward a used EV priced at $25,000 or less that has not previously received a federal tax credit for a used EV purchase. The income requirement for this for individual filers is an AGI of $75,000 or $150,000 for joint filers and there is a limit of one used EV credit every three years. This will take effect on January 1, 2023.
  8. Commercial EVs - Businesses using EVs could be eligible for a 30% tax credit, up to $7,500 for vehicles less than 14,000 pounds or up to $40,000 for vehicles over 14,000 pounds. This will take effect January 1, 2023.
  9. Charging Infrastructure Tax Credit - The bill restored a tax credit for charging infrastructure installation that previously ended on December 31, 2021. The amount of the credit is 30% of the actual equipment and installation costs, up to $100,000 per property if prevailing wage and registered apprenticeship requirements for installation are met. Costs for bi-directional charging equipment may be eligible (e.g. Vehicle-to-home power systems). Starting in January 2023, the credit will be limited to property located in qualifying census tracts in low-income communities under the New Markets Tax Credit or non-urban areas.

How to claim your incentive

For more information on how to claim the electric car tax credit, visit the U.S. Department of Energy╩╝s Fuel Efficient Vehicle Tax Information Center (see the "Claiming the Credit" section beneath the listing of models and tax credit amounts). The IRS also provides additional information on the forms and procedures for claiming the credit on their website.

The US Treasury Department has also published a list of Frequently Asked Questions related to the Inflation Reduction Act EV incentive changes that may be of interest.

We will update this page as more information becomes available.