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EV tax credit FAQs: How it's changing and which cars are eligible

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Autoblog Staff
·12 min read
EV tax credit FAQs: How it's changing and which cars are eligible



Starting Jan. 1, many Americans will qualify for a tax credit of up to $7,500 for buying an electric vehicle. The credit, part of changes enacted in the Inflation Reduction Act, is designed to spur EV sales and reduce greenhouse emissions.

But a complex web of requirements, including where vehicles and batteries must be manufactured to qualify, is casting some doubt on whether anyone can receive the full $7,500 credit next year.

The Treasury Department is rolling out more information on which vehicles qualify and how individuals and businesses can access credit beginning in 2023. One big loophole that allows tax credits for EVs purchased for “commercial” use, such as leasing or ride-share, even if they are foreign-made is drawing the ire of Sen. Joe Manchin, D-W.Va., who says it could circumvent the intent of the law to favor American manufacturing.

For at least the first two months of 2023, though, a delay in some of Treasury's rules will likely make the full credit temporarily available to consumers who meet certain income and price limits.

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The new law also provides a smaller credit for people who buy a used EV.

Certain EV brands that were eligible for a separate tax credit that began in 2010 and that will end this year may not be eligible for the new credit. Several EV models made by Kia, Hyundai and Audi, for example, won't qualify because they are manufactured outside North America.

The new tax credit, which lasts until 2032, is intended to make zero-emission vehicles affordable to more people. Here is a closer look at it.

What's new for 2023?

The credit of up to $7,500 will be offered to people who buy certain new electric vehicles as well as some plug-in gas-electric hybrids and hydrogen fuel cell vehicles. For people who buy a used vehicle that runs on battery power, a $4,000 credit will be available.

But the question of which vehicles and buyers will qualify for the credits is complicated and will remain uncertain until Treasury issues the proposed rules in March.

What's known so far is that to qualify for the credit, new EVs must be made in North America. In addition, caps on vehicle prices and buyer incomes are intended to disqualify wealthier buyers.

Starting in March, complex provisions will also govern battery components. Forty percent of battery minerals will have to come from North America or a country with a U.S. free trade agreement or be recycled in North America. (That threshold will eventually go to 80%.)

And 50% of the battery parts will have to be made or assembled in North America, eventually rising to 100%.

Starting in 2025, battery minerals cannot come from a “foreign entity of concern,” mainly China and Russia. Battery parts cannot be sourced in those countries starting in 2024 — a troublesome obstacle for the auto industry because numerous EV metals and parts now come from China.

There also are battery-size requirements. A vehicle must have a battery capacity of at least 7 kWh to qualify. This allows plug-in hybrid vehicles to qualify in addition to full electric cars.

Which vehicles are eligible?

Because of the many remaining uncertainties, that’s not entirely clear. However, the Treasury Department released an initial list of electric and plug-in hybrid vehicles that meet the requirements to claim the new clean vehicle tax credit beginning Jan. 1, including models from Chrysler, Ford, Jeep, Lincoln, Nissan and Rivian.

In addition to the battery and final assembly requirements, the tax credit can only be applied to vehicles under a certain price. This varies depending on the vehicle body style. If it's a truck, van or SUV, the limit is set at $80,000. If it's anything else, basically more conventional sedans and hatchbacks, the limit is $55,000. This is convenient for buyers of trucks and SUVs which can be quite expensive, though it could potentially incentivize some wealthier buyers to purchase larger, less efficient EVs because they can get the features they want and still qualify for a tax credit.

It's not necessarily clear just by looking at a car to tell if it will qualify for one price cap or the other. The classification is based on EPA rules for fuel economy, and the differences can seem borderline arbitrary. For example, the Lincoln Corsair Grand Touring has a $55,000 price cap, but it's near twin the Ford Escape PHEV gets the $80,000 price cap. Even more granular are the distinctions for the Tesla Model Y and VW ID.4. The Model Y with just two rows has the $55,000 cap, but the three-row version has the $80,000 cap. On the ID.4, the rear-drive version has the $55,000 cap and the all-wheel-drive version has an $80,000 cap.

On the topic of price caps, each respective cap is based on the vehicle's MSRP. That should mean that destination charges, dealer markups and other fees and taxes won't apply. This also means that you likely won't be able to negotiate a higher-MSRP vehicle down below the cap to get the tax credit.

These are all the more reason to carefully check the list below for which vehicles qualify, and to use the VIN check provided by the Energy Department to ensure the specific car you're looking at qualifies. More vehicles will be added to the list in the weeks and months to come, as most automakers have signed up to be qualified manufacturers, but haven't finalized qualifying models.

  • Audi

    • 2023 Q5 e-Quattro ($80,000)

  • BMW

    • 2023 330e ($55,000)

    • 2023 X5 eDrive45e ($80,000)

  • Cadillac

    • 2022-2023 Lyriq ($55,000)

  • Chevrolet

    • 2022-2023 Bolt ($55,000)

    • 2022-2023 Bolt EUV ($55,000)

  • Chrysler

  • Ford

  • Jeep

    • 2022-2023 Wrangler 4xe ($80,000)

    • 2022-2023 Grand Cherokee 4xe ($80,000)

  • Lincoln

    • 2022-2023 Lincoln Aviator Grand Touring ($80,000)

    • 2022-2023 Lincoln Corsair Grand Touring ($55,000)

  • Nissan

  • Rivian

    • 2022-2023 Rivian R1S ($80,000)

    • 2022-2023 Rivian R1T ($80,000)

  • Tesla

    • 2022-2023 Model 3 ($55,000)

    • 2022-2023 Model Y (2-Row: $55,000 cap, 3-Row: $80,000 cap)

  • VW

  • Volvo

    • 2022-2023 S60 plug-in hybrid variants ($55,000)

General Motors and Tesla have the most EVs assembled in North America. Each also makes batteries in the U.S. But because of the requirements for where batteries, minerals and parts must be manufactured, it's likely that buyers of those vehicles would initially receive only half the tax credit, $3,750. GM says its eligible EVs should qualify for the $3,750 credit by March, with the full credit available in 2025.

Until Treasury issues its rules, though, the requirements governing where minerals and parts must be sourced will be waived. This will allow eligible buyers to receive the full $7,500 tax incentive for qualifying models early in 2023.

Will I qualify for the credits?

It depends on your income. For new EVs, buyers cannot have an adjusted gross income above $150,000 if single, $300,000 if filing jointly and $225,000 if head of a household.

For used EVs, buyers cannot earn more than $75,000 if single, $150,000 if filing jointly and $112,500 if head of household.

How will the credit be paid?

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