With the rise of electric vehicles (EVs) across the United States, the federal government has continued offering generous tax incentives to encourage consumers to transition to clean energy alternatives. One of the most attractive financial benefits is the Plug-In Electric Vehicle (PEV) tax credit. This blog provides a comprehensive guide to understanding how the federal EV tax credit works, how much you can get back, and what vehicles and buyers qualify under current law.
What Is the Plug-In Electric Vehicle Tax Credit?
The Plug-In Electric Drive Vehicle Credit, governed under Section 30D of the Internal Revenue Code, is a non-refundable federal tax credit provided to buyers who purchase qualifying new electric or plug-in hybrid vehicles. The credit is designed to reduce the net cost of eligible vehicles and accelerate the shift toward a greener transportation infrastructure.
The credit was revamped as part of the Inflation Reduction Act (IRA) signed in August 2022, with new eligibility and manufacturing requirements taking effect in 2023 and 2024.
How Much Is the Credit Worth?
The base federal EV tax credit can be up to $7,500, but the amount you receive depends on several factors, including:
- The vehicle’s battery capacity
- Final assembly location
- Manufacturer’s compliance with critical mineral and battery component sourcing requirements
- Your personal tax liability for the year
Note: The EV credit is non-refundable, meaning you can only use it to offset your federal income tax liability for the year of purchase. If you owe less in taxes than the credit amount, you won’t receive a refund for the difference.
Breakdown of the $7,500 Credit Under the IRA
The Inflation Reduction Act divides the credit into two components:
- $3,750 for meeting critical mineral requirements (a portion of the battery materials must come from the U.S. or a trade partner)
- $3,750 for meeting battery component sourcing requirements (a percentage of the battery must be manufactured or assembled in North America)
If a vehicle fails to meet either requirement, it may only be eligible for part of the $7,500 credit—or none at all.
Income and Price Limitations
Income Eligibility Limits
To qualify for the credit, your Modified Adjusted Gross Income (MAGI) must be below the following thresholds:
- $300,000 for Married Filing Jointly
- $225,000 for Head of Household
- $150,000 for Single Filers
You can use either the current tax year or the previous year to determine eligibility.
MSRP Limits for Eligible Vehicles
The price of the vehicle also matters. To qualify, the Manufacturer’s Suggested Retail Price (MSRP) must not exceed:
- $55,000 for sedans and hatchbacks
- $80,000 for SUVs, vans, and pickup trucks
The MSRP limit is based on the vehicle’s configuration and must be within the allowable threshold, regardless of the final sales price after dealer incentives.
Eligible Vehicles (As of 2025)
The list of qualifying EVs changes frequently as automakers adjust their manufacturing processes to comply with the critical minerals and battery sourcing rules. As of 2025, the following models are commonly eligible for either the full or partial credit:
Examples of Vehicles That May Qualify for Full $7,500:
- Ford F-150 Lightning
- Chevrolet Bolt EUV (2024 inventory)
- Tesla Model Y (certain trims)
- Rivian R1T and R1S (if configured under price cap)
Vehicles Potentially Qualifying for $3,750 Only:
- Some BMW, Hyundai, and Kia models (depending on final assembly and sourcing compliance)
- Volkswagen ID.4 (non-U.S. battery source trims)
Leased EVs and Commercial Clean Vehicle Credit
If you’re leasing rather than purchasing an EV, the credit is typically claimed by the leasing company—not the consumer. However, some dealers may pass along the credit as part of the lease terms by lowering your monthly payment or offering a cash rebate.
Businesses and commercial fleets may also claim a credit under the Commercial Clean Vehicle Credit, which has different qualification criteria and no income limits or price caps.
Used EVs Also Get a Credit (Section 25E)
The Inflation Reduction Act introduced a new tax credit for the purchase of used electric vehicles:
- Credit Amount: 30% of the sale price, up to $4,000
- Vehicle Requirements: Must be at least two years old, sold by a dealer, and cost less than $25,000
- Buyer Income Limits:
- $150,000 (Married Filing Jointly)
- $112,500 (Head of Household)
- $75,000 (Single)
How to Claim the EV Tax Credit
To claim the credit, you must file IRS Form 8936 (Qualified Plug-In Electric Drive Motor Vehicle Credit) with your federal tax return for the year in which you took delivery of the vehicle.
Key documentation to keep:
- Vehicle Identification Number (VIN)
- Purchase agreement showing the date of delivery
- Proof of compliance with final assembly and MSRP limits (dealership documentation)
Starting 2024: Transfer of Credit to Dealership
Beginning in 2024, buyers have the option to transfer the EV credit to the dealership at the time of sale, effectively lowering the purchase price or acting as a down payment. This makes the credit feel more like an instant rebate rather than a delayed benefit.
Other State and Local Incentives
Many states offer additional EV incentives that stack with the federal credit. These may include:
- Point-of-sale rebates
- HOV lane access
- Free or discounted charging station installation
- Exemptions from emissions or inspections
Check with your state’s Department of Transportation or Energy Office for up-to-date incentive information.
Conclusion
Plug-In Electric Vehicle tax credits can provide a significant financial incentive to purchase a new or used EV. With potential savings of up to $7,500 on new vehicles and $4,000 on used ones, the tax benefits can substantially reduce the cost of going electric. However, not all EVs qualify, and both the buyer’s income and the vehicle’s price and sourcing requirements play a critical role in determining eligibility. Be sure to verify current rules, consult IRS Form 8936, and confirm eligibility with your dealer before committing to an EV purchase.
