The Electric Vehicle Tax Credit Explained [2022]

Electric vehicles have the promise of creating a more sustainable future. They have been shown to reduce carbon emissions as well as some other environmental impacts of cars. But, they can be expensive. In this article, I’m going to go over the electric vehicle tax credit, what it is, how to get it, and what it covers.  At the end of the video I’ll also answer some common questions about the EV tax credit.

For many people, electric vehicles can be too expensive. With this in mind, the electric vehicle tax credit was created to help bring down the cost of purchasing an EV. There is a lot of confusion out there about what the EV tax credit is and how you get it. Part of this confusion is because some of the details are not completely final, so be sure to check the bottom of the article for updates and to see which vehicles qualify for the tax credit, as well as how much you can get for each vehicle.



The electric vehicle tax credit is a dollar for dollar reduction on your federal income tax [1]. This means if you owe any federal income tax, you can use your EV tax credit to pay some of, or all of what you owe, depending on how much your tax credit is and how much you owe in taxes. If you don’t have any federal income tax, or don’t have enough federal income tax, you may instead be able to get the credit as a refund, which I’ll go in more detail in a moment.



In order to qualify for the tax credit, there are different requirements the vehicle must meet and there is an income requirement you must meet as well. Some of these requirements are already in effect, while others phase in over time. The tax credit is available until the end of 2032, so you have many years to take advantage of the credit [1]


The first requirement is that any electric vehicle must be assembled in North America. If you’re watching this video, this requirement is already in effect [1]. So currently, any vehicle assembled outside of North America does not qualify. From here, the requirements for a new vehicle and used vehicle are different. Starting with the requirements for a new vehicle, from now until the end of 2022, you can qualify for up to $7500 for a new hybrid or electric vehicle. If you purchase an electric vehicle from now until the start of 2023, you would qualify for more of the tax credit the bigger the battery capacity. For a qualifying vehicle, you would get $2917, plus an additional $417 for each kilowatt hour of battery capacity in excess of 5 kilowatt hours, up to $7500 [2]. So, if you purchase an electric car with a 35 kWh battery, you would get 2917 dollars, plus another 417 dollars for each of the 30 kWh over 5 kWh. That would be 30 times 417 plus 2917, which is 15,427, but the tax credit is limited so $7500. This means even an 18 kWh would max out this credit. This also means nearly all electric cars on the market from today until the end of 2022 will qualify for the full 7500, as long as they are assembled in North America. Hybrids typically come with a smaller battery, so at 417 dollars per kWh, they may not qualify for the full $7500. 


Starting in 2023, the tax credit is instead split into 2 parts, each worth $3750. You can get one or both of these parts, depending on whether or not the vehicle qualifies [1]. The first part has to do with where the materials come from to make the battery and the second is where the battery parts are manufactured. The requirements are a bit confusing because they are designed to push manufacturing towards the US based on some of the technical details of making electric cars and the exact details have not been finalized yet.


Battery Requirements


The first $3750 is based on where materials used to make the battery come from.  The requirement is any vehicle placed in service in 2023 must have at least 40% of the value of critical minerals in the battery come from countries in North America, be recycled in the US, or that have a Fair Trade agreement with the US, of which there are about 20 countries. In 2024 this requirement increases to 50%, in 2025 60%, in 2026 70% and in 2027 it must be 80%.  Also, by 2025, any vehicle with any amount of metals extracted, processed, or recycled from “entities of concern” will no longer qualify. Since most batteries and the materials to make them come from China, who does not have a fair trade agreement with the US, most electric vehicle models won’t qualify for the credit, even if the actual vehicle is assembled in the US. This incentivizes auto manufacturers to change their manufacturing and sourcing locations to the US and other qualified areas.


The second $3750 of the tax credit focuses on where the various battery components are assembled or manufactured.  For vehicles placed in services in 2023, at least 50% of the value of battery components must be manufactured in North America. In 2024 the requirement is 60%, in 2026 70%, in 2027 80%, in 2028 90%, and in 2029 100%. So again, many electric vehicle models will need to change where their battery components come from to qualify. 


So, if your car meets only one of the battery requirements, you could still qualify for half the total tax credit worth $3750.  If you owe $3750 or more in federal income tax, you’ll be able to use the tax credit to eliminate or reduce your federal income tax.


If you owe less in federal income tax than what you qualify for, there is a chance you could earn any remaining amount of the tax credit as a refund. I’ve read through the actual Inflation Reduction Act Bill [1], summary of the bill [3], and amendments to the bill [4]. From how I understand it, it seems the tax credit is in fact refundable for new and used vehicles. As the details of the bill are finalized, it will become more clear. Just be sure to check with a tax professional and with the dealer on what to expect before signing anything.  Going back to our example, if the credit is refundable, and you only owe, let’s say $1000 in federal income tax, and qualify for $3750 for the electric vehicle tax credit, you can use your tax credit to pay the $1000 of income tax and get the remaining $2750 as a refund. If the tax credit is not-refundable, you would only get the $1000 reduction of your federal income tax.  Starting in 2024, you’ll be able to get the credit upfront from the dealer, so you don’t have to wait for tax season to get the credit, so it can directly lower the cost of the car when you buy it. 

MSRP Requirement


In addition to the two battery requirements:

Sedans must have an MSRP of $55,000 or less to qualify, while trucks, vans, and SUVs are capped at $80,000. All of this applies to hybrids as well, as long the battery is larger than 7 kWh and they have a plug. Non-plug-in hybrids don’t qualify.


Also, certain manufactures were previously excluded from the tax credit because there was a cap on the number of vehicles each manufacturer could sell and have the buyer receive the tax credit. This meant cars sold by Tesla and GM no longer qualified for the credit. However, since this cap will be removed, and Tesla and GM are made in the US, they will once again qualify for the tax credit in 2023. After that point, they will need to meet the requirements for battery, as well MSRP. 


Income Requirement 

The income requirement you must meet is based on your modified adjusted gross income or MAGI, which is the amount of income you receive after certain adjustments and deductions. You should talk with a tax professional to figure out what your MAGI is. If you file your taxes as an individual, your modified adjusted gross income cannot be more than $150,000 per year in order to qualify for the tax credit. If you file jointly however, the cap is $300,000 a year and if you file as head of household, the cap is $225,000 [1]. If you exceed these limits, you won’t qualify. 


Used Vehicles 

Since new vehicles are often still too expensive for many people, used cars can qualify for the tax credit as well. Starting in 2023 until the end of 2032, you can get a credit of 30% of the cost of a used vehicle up to $4000. So as an example if you purchase a used car worth $10,000, you’ll qualify for $3000. If your vehicle is worth $15,000 though 30% would be $4500, but the cap is $4000, so you’ll only get $4000. Since this part may too be refundable, you’ll first be able to apply the credit towards any federal income tax you owe and get the rest as a refund.


The other requirements for a used vehicle are a less complicated than a new vehicle [1]:

  • The vehicle cannot cost more than $25,000 or it won’t qualify
  • The vehicle can be made anywhere, not just in the US
  • The vehicle must be purchased from a dealer, so it cannot be purchased from an individual
  • The vehicle must be at least two model years old and
  • A vehicle can only qualify for the tax credit once, so if a certain vehicle has been sold multiple times between 2023 and 2032, only one buyer can get the used car tax credit for that vehicle.
The requirements for you for a used vehicle are [1]:
  • You cannot be the original owner of the car
  • You cannot be a business
  • You can only qualify for the tax credit on a used car once every three years. and
  • You must meet the income cap for used vehicles. If you file your taxes as an individual the cap for used vehicles is $75k. If you file as head of household the cap is $112,500, and if you file jointly, the cap is $150k. If you make more than these limits, you won’t qualify for the tax credit.

One thing to keep in mind is that even if you typically don’t owe much in federal income tax, or you normally get a refund, you still have paid federal income tax. This is because for many people, your employer has been collecting federal income tax from your paycheck through the year. So even though you don’t appear to owe any federal income tax, you have been paying federal income tax, so you would be able to get the tax credit. This point may not matter as much, since the credit seems to be refundable.


To see if you qualify, talk to an accountant and make sure the details of the tax incentives have been discussed and agreed upon before signing anything at the dealer. 


Common Questions

Here are some common questions about the tax credit:

Will I qualify for the credit under a lease?

If you want to lease an electric vehicle, you will not qualify for the tax credit since you don’t own the vehicle. The dealer may be able to give you a lower monthly cost on a lease since they receive the tax credit dollars, but these are details you’d have to go over with the dealer and have in your contract.

What happens between now and when the new electric vehicle credit goes into effect in 2023?

If you ordered an electric vehicle before the bill was passed in mid August of 2022, you’ll still be able to take advantage of the old version of the tax credit based on the size of the battery. However, that version of the tax credit was not refundable, so you may not earn the full $7500 if the battery capacity isn’t large enough. You can decide which version of the tax credit to go with based on what works best for you. If you purchase an electric vehicle after mid august of 2022, the vehicle must be made in North America, but does not have to meet the battery requirements just yet. The old requirements still apply, so the credit is still based on battery capacity.

If you want to learn how the environmental impact of electric cars compare to gas cars, check out this article next. If you want to learn how you can also save on switching to solar power, through the solar tax credit, check out this article next.


Which Vehicles Qualify for the Tax Credit?


 2022 Models [5]

Electric Vehicles Assembled in North America
Model YearVehicleNote
2022Audi Q5 
2022BMW 330e 
2022BMW X5 
2022Chevrolet Bolt EUVManufacturer sales cap met
2022Chevrolet Bolt EVManufacturer sales cap met
2022Chrysler Pacifica PHEV 
2022Ford Escape PHEV 
2022Ford F Series 
2022Ford Mustang MACH E 
2022Ford Transit Van 
2022GMC Hummer PickupManufacturer sales cap met
2022GMC Hummer SUVManufacturer sales cap met
2022Jeep Grand Cherokee PHEV 
2022Jeep Wrangler PHEV 
2022Lincoln Aviator PHEV 
2022Lincoln Corsair Plug-in 
2022Lucid Air 
2022Nissan Leaf 
2022Rivian EDV 
2022Rivian R1S 
2022Rivian R1T 
2022Tesla Model 3Manufacturer sales cap met
2022Tesla Model SManufacturer sales cap met
2022Tesla Model XManufacturer sales cap met
2022Tesla Model YManufacturer sales cap met
2022Volvo S60

2023 Models [5]

2023BMW 330e 
2023Bolt EVManufacturer sales cap met
2023Cadillac LyriqManufacturer sales cap met
2023Jeep Grand Cherokee PHEV 
2023Jeep Wrangler PHEV 
2023Mercedes EQS SUV 
2023Nissan Leaf


[1] – The New 2022 Inflation Reduction Act Bill

[2] – The Previous Version of the Electric Vehicle Tax Credit

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