Electric & Hybrid Car Tax Credits [2021 Simple Guide]
Steve Birkett is an electric vehicle advocate based in Greater Boston, Massachusetts. He is a content creator and marketing professional who contributes written and recorded pieces to a wide range of media outlets. His work has been featured in Find The Best Car Price and Torque News, among others. He has also had video content featured on Inside EVs. Birkett was an EV Guide for Plug in America events in Massachusetts (Drive Electric Cambridge and Drive Electric Lowell) and Ohio (Earth Day 2019 at Cleveland Zoo). He participates in quarterly advisory panel meetings for EVolve New York (a state-level charging initiative) and has contributed to focus groups for prominent U.S. charging networks.
Birkett is a father-of-two who loves nothing more than packing up the family and hitting the road in their latest electric car, which is currently a 2020 Chevrolet Bolt EV. With a Chevy Volt and Tesla Model 3 LR in the extended family, plus various EV rentals when he ventures back home to his native United Kingdom, Birkett has more than 60,000 all-electric miles under his belt and is always ready to try out a new electric vehicle.
For press inquiries, contact steve@findthebestcarprice.com
On average, it costs half as much to dive an electric car than a gas car. Over time, electric cars will save you a lot of money through lower fuel costs, which is an important concern considering that the average US household spends 1/5th of its total expenditures on transportation. Additionally, plug-in electric vehicles cut down on carbon emissions, and ultimately help our planet.
The one factor holding many people back from choosing electric vehicles (EVs) is the initial cost. While they save you money in the long term, they are almost always more expensive upfront than a traditional car. Luckily, both federal and state incentives for buying an EV can help reduce the financial burden.
Besides cost and tax incentives, you should consider a few other things before making the switch to an all-electric car. Check out our article on how to prepare for buying an electric car.
Let's review some of the most widely available incentives and how to find out about your local electric car incentives.
Table of Contents
Federal Electric Car Incentive
A federal EV tax credit program offers up to $7,500, depending on your situation. The type of vehicle you choose and your tax circumstances impact the incentive you qualify for. The capacity of the battery used to power the vehicle impacts the federal tax credit you can get. Electric and plug-in hybrid cars purchased after 2010 are eligible for the federal tax credit.
Since the federal tax credit is based on the capacity of the vehicle’s battery pack, the original cost of the vehicle does not matter. A more expensive EV will not necessarily offer a higher federal tax credit than a less expensive one.
Check out the available EV and PHEV incentives by model here.
Since the Federal tax credit is not a tax rebate, you can only claim the credit up to your tax liability in the year you claim the credit. The tax credit lowers the federal tax liability on your income for that year.
You can view all qualifying vehicles for the Federal EV Tax Credit at fueleconomy.gov. However, consult a tax professional to review your specific tax situation.
Qualifications for the Federal EV Tax Credit
There are some specifications for which vehicles meet the criteria for the federal tax credit. For a vehicle to be eligible for the federal government, it must:
- Be a road-going vehicle.
- Be purchased. If you lease a vehicle, you cannot qualify for the federal EV tax credit.
- Charge from an external source.
- Contain a battery pack with a capacity of 4 KW hours or more.
- Be 100% battery-electric or have a plug-in hybrid power chain.
- Purchased as a new car from a factory with electrified powertrains.
- Be intended for use on US roads.
- Not be ethanol, diesel, or fuel-cell.
Mass-produced full-electric vehicles sold in the US qualify for the entire $7,500 tax credit. However, Tesla and General Motors already exceeded the sales volume cap of the federal program, so you will not be able to get the entire federal credit.
As for plug-in hybrids, most qualify for a federal tax credit between $3,500 and $6,300. However, a few qualify for the full federal EV tax credit, including:
- 2020 and 2021 Toyota Rav4 Prime
- 2020 Chrysler Pacifica Hybrid
- 2020 Honda Clarity PHEV
How to Claim the EV Federal Tax Credit
Since it is a tax credit, you do not get it immediately upon purchasing the EV. You apply for the EV federal tax credit when you file your taxes for the year you purchased the vehicle. If you purchased a new EV in May of 2021, you would apply for the tax credit when you file your 2021 taxes at the beginning of 2022.
You must fill out IRS Form 8936 when filing your annual income tax returns. Keep in mind that not all online or software-based tax systems support this form.
Does the EV Tax Credit Apply to Used Cars?
The federal EV tax credit is not applicable for used cars; it only applies to those buying new cars. Fortunately, purchasing a used EV is much less expensive than purchasing a new one. This makes the incentive not as necessary for used EV buyers.
Does the EV Tax Credit Apply to Leased Cars?
Only the vehicle’s titleholder can claim the EV tax credit. While leasing an EV is great for the environment and allows you to upgrade to newer technology every few years, you will not claim the EV tax credit. Some lenders will factor in the tax credit to the monthly payment calculations, which would allow you to absorb some of the benefit of the tax credit in the form of lower monthly payments.
State EV Incentives
In addition to the federal tax credit, electric vehicles may also qualify for local and state incentives. Of course, the amount and type of incentives available to you depend on the programs offered in your state. In most cases, the state incentives can be combined with the federal incentive program for a $10,000 savings on the out-of-pocket cost of purchasing an EV.
Some of the potential incentives you can get from your state or local government include:
- Grants
- Tax incentives
- Loans and leases
- Rebates
- Exemptions
You should check for your local incentives before purchasing the EV to make sure you know all of your options and the timelines of the incentives. While the federal tax credit does not apply when leasing vehicles, some state incentives do. For example, Colorado offers a $2,000 tax credit for the lease of a new EV.
How to Claim the EV State Incentives
Each state has its own EV incentives and process. The incentives and process can vary drastically among states, so be sure to research how to claim the EV state incentive for your state.
How to Claim the California EV Rebate
California offers several incentives, including a $7,000 grant based on income eligibility, a $1,500 California Clean Fuel Reward, discounted charging rates during off-peak hours, rebates for level 2 installation, and free charging for one year based on region.
Due to California EV rebates' high cost and popularity, they installed an income limit of $150,000 for an individual or $300,000 for joint filers. Plug-in hybrids with electric ranges under 35 miles or EVs with a base price above $60,000 are not eligible. The California rebate is cash or a check at the point of sale. A mailed check may take up to 18 months to arrive.
To learn more about the process and apply for a rebate, head to California’s Clean Vehicle Rebate page.
Utility Incentives
Many utility companies and communities also provide EV incentives. You may be able to earn cash back, credits, or a discounted rate plan for purchasing an electric car. Many states, like Arizona, California, and Hawaii have electric companies that offer reduced electricity rates based on the time-of-use for EV owners.
Buying an EV is a great investment for your wallet and our planet. There are many different types of incentives that help reduce the upfront cost of buying an electric vehicle. Make sure to determine the total federal, state, and local incentives that you can qualify for before you purchase an EV using the resources above.
Incentives by State
In the table below, we summarize each state's available rebates, tax credits, and utility incentives when purchasing an electric vehicle.
| State | State Incentives | Utility Incentives |
|---|---|---|
| Alabama | No emissions testing required | Grants for EVSE installation Discounted rate if charging between 9PM - 5AM Plug-In Electric Vehicle (PEV) Charging Rate Incentive |
| Alaska | Discounted charging rate during off-peak hours | |
| Arizona | Reduced Vehicle License Tax and carpool lane access | Reduced electricity rates based on time-of-use |
| Arkansas | No emissions testing required Up to $1,000 tax credit to switch | |
| California | $7,000 grant (based on income eligibility) $1,500 California Clean Fuel Reward | Discounted charging rate during off-peak hours Rebates for Level 2 installation and free charging for one year based on region |
| Colorado | Income tax credit of $2,500 for purchase or conversion; $1,500 for lease No emissions testing required 25% Fuel Reduction Technology Tax Credit | Offers funding for up to 80% of EVSE Up to $35,000 per EVSE |
| Connecticut | Rebate between $500 and $3,000 No emissions testing required Free metered parking in New Haven | Up to $600 rebate for Level 2 EVSE |
| Delaware | UP $3,500 rebate for purchase/lease of BEV, and $1,500 for PHEV New Battery Electric Vehicles Rebate $2,500 | $200 one-time credit and $5/month to not charge during peak hours Up $500 rebate for Level 1 or 2 charger installation |
| Florida | Up $1,000 rebate to purchase/lease a PHEV HOV lane access No emissions testing required | Rebates for EVSE installation |
| Georgia | Eligible for HOV and HOT lanes | Discounted charging rate from 11PM - 7AM Rebate for Level 2 EVSE installation |
| Hawaii | Eligible for HOV lanes No emissions testing required Free parking at state and municipal garages and in metered stalls | Discounted charging rate during off-peak hours $500 rebate for Level 2 EVSE |
| Idaho | No emissions testing required | 50% of project costs, up to $7,500 per site for Level 1 or 2 EVSE |
| Illinois | Reduced registration fee and no emissions testing required | Discounted charging rate during off-peak hours |
| Indiana | No emissions testing required | Discounted charging rate during off-peak hours Indiana & Michigan Power offers a $500 enrollment incentive for off-peak charging |
| Iowa | No emissions testing required | Rebate for Level 2 EVSE Plug-In Electric Vehicle (PEV) Fee |
| Kansas | No emissions testing required | |
| Kentucky | No emissions testing required | |
| Louisiana | Tax credit of 10% of vehicle cost, up to $2,500 No emissions testing required | $250 rebate for Level 2 EVSE |
| Maine | Up to $2,000 rebate | Discounted charging rate during off-peak hours |
| Maryland | One-time tax credit up to $3,000 Eligible for HOV lane | Discounted charging rate during off-peak hours Rebates for Level 2 EVSE and options to lease |
| Massachusetts | No emissions testing required $2,500 rebate for new vehicles with a purchase price under $50,000 | $8/month credit for off-peak hours $250 rebate for Level 2 EVSE Provides grants for 60% of the cost of Level 1 or Level 2 EVSE installed at MUDs, up to $50,000 per street address. |
| Michigan | No emissions testing required | Discounted charging rate during off-peak hours Up to $500 to install Level 2 EVSE |
| Minnesota | No emissions testing required | Discounted charging rate during off-peak hours Free charging from wind energy $500 rebate for Level 2 EVSE |
| Mississippi | No emissions testing required | $250 rebate for Level 2 EVSE |
| Missouri | No emissions testing required; $78.50 annual fee | |
| Montana | No emissions testing required Up to $1,000 tax credit to switch | |
| Nebraska | Lower interest rate loans | Rebates for Level 2 EVSE |
| Nevada | Eligible for HOV lanes No emissions testing required Free metered parking | Discounted charging rate during off-peak hours |
| New Hampshire | $1,000 rebate for purchase/lease | Discounted charging rate during off-peak hours |
| New Jersey | Up to $5,000 rebate on purchase/lease Sales tax and emission testing exemption Discounted tolls | |
| New Mexico | No emissions testing required | |
| New York | Up to $2,000 rebate No emissions testing required Discounted tolls | Discounted charging rate during off-peak hours |
| North Carolina | Discounted charging rate during off-peak hours Rebates for Level 2 EVSE |
|
| North Dakota | ||
| Ohio | No emissions testing required after one-time inspection | Lease program for Level 2 EVSE |
| Oklahoma | 75% cost reduction on alternative fuel vehicle | |
| Oregon | Up to $2,500 rebate to replace or new purchase | Discounted charging rate during off-peak hours $500 rebate for Level 2 EVSE |
| Pennsylvania | Up to $1,500 rebate | Lease program for Level 2 EVSE |
| Rhode Island | Rebates to purchase/lease No emissions testing required | |
| South Carolina | ||
| South Dakota | No emissions testing required | |
| Tennessee | No emissions testing required | $400 rebate for Level 2 EVSE |
| Texas | Rebates to purchase/lease No emissions testing required | Discounted charging rate during off-peak hours Up to 50% off the cost of Level 2 EVSE |
| Utah | $200 rebate for one year | |
| Vermont | Up to $5,000 incentive Low or no interest loans No emissions testing required | Discounted charging rate during off-peak hours depending on region Rebates for Level 2 EVSE installation |
| Virginia | No emissions testing required $2,500 rebate | |
| Washington | Sales tax exemption No emission testing required; $100 registration fee | Tax credit for 50% of costs of home charging installation, up to $1,000 |
| West Virginia | No emissions testing required | Lease program for Level 2 EVSE |
| Wisconsin | No emissions testing required | Discounted charging rate during off-peak hours Alliant Energy is offering a $500 rebate for EV home charging installation |
| Wyoming | No emissions testing required; annual $50 fee | $5,000 rebate for businesses installing EVSE |
Incentives by Electric Vehicle (EV) Model
The federal electric vehicle tax credit (up to $7,500) is based on the vehicle’s battery pack, not the price. The credit amount will begin to drop and eventually completely phase out when the manufacturer sells 200,000 units of a particular model.
The federal tax credit only reduces your tax liability. For example, even if a vehicle qualifies for the full $7,500 and you owe $5,000 in taxes, it will only credit the $5,000. You will not receive the rest of the credit of $2,500.
In the table below, we summarize the 2020 and 2021 EV models with available rebates when purchasing.
| Make | Model | Federal Tax Credit |
|---|---|---|
| Audi | e-tron Sportback | $7,500 |
| Audi | e-tron SUV | $7,500 |
| BMW | i3 | $7,500 |
| Chevrolet | Bolt EV | Phased Out - N/A |
| Ford | Mustang Mach-E | $7,500 |
| Hyundai | IONIQ Electric | $7,500 |
| Hyundai | Kona Electric | $7,500 |
| Jaguar | I-PACE | $7,500 |
| Kia | Niro EV | $7,500 |
| Mini | Cooper Hardtop Electric | $7,500 |
| Nissan | Leaf | $7,500 |
| Polestar | Polestar 2 | $7,500 |
| Porsche | Taycan | $7,500 |
| Tesla | All Models | Phased Out - N/A |
| Volkswagen | ID.4 | $7,500 |
| Volvo | XC40 Recharge | $7,500 |
Incentives by Plug-in Hybrid (PHEV) Model
As mentioned above, the federal electric vehicle tax credit amount is based on the vehicle’s battery pack capacity. A fully electric vehicle has more battery capacity than any plug-in hybrid model.
Since it is based on the battery pack size, plug-in hybrid (PHEV) models will not receive the full $7,500 like fully electric vehicles do. EV and PHEV models both start with a base incentive of $2,500, and $417 is added for every 5 kWh of battery capacity, with a limit of $7,500.
In the table below, we summarize the 2020 and 2021 PHEV models with available rebates when purchasing.
| Make | Model | Incentive |
|---|---|---|
| Audi | A7 55 TFSI e Quattro | $6,712 |
| Audi | A8 L 60 TFSI e Quattro | $6,712 |
| Audi | Q5 55 TFSI e Quattro | $6,712 |
| BMW | X3 xDrive30e | $5,836 |
| BMW | X5 xDrive45e | $7,500 |
| BMW | 330e | $5,836 |
| BMW | 330e xDrive | $5,836 |
| BMW | 530e | $5,836 |
| BMW | 530e xDrive | $5,836 |
| BMW | 745e xDrive | $5,836 |
| GM | All Models | Phased Out - N/A |
| Chrysler | Pacifica PHEV | $7,500 |
| Ford | Escape Plug-In Hybrid | $6,843 |
| Ford | Fusion Energi | $4,609 |
| Honda | Clarity Plug-In Hybrid | $7,500 |
| Hyundai | Ioniq Plug-In Hybrid Electric Vehicle | $4,543 |
| Jeep | Wrangler PHEV | $7,500 |
| Kia | Optima Plug-In Hybrid | $4,919 |
| Kia | Niro Plug-in Hybrid | $4,543 |
| Land Rover | Range Rover PHEV | $6,295 |
| Land Rover | Range Rover Sport PHEV | $6,295 |
| Lincoln | Aviator Grand Touring | $6,534 |
| Lincoln | Corsair Reserve Grand Touring | $6,843 |
| Mercedes-Benz | GLC350e 4M EQ | $6,462 |
| Mercedes-Benz | S560e EQ PHEV | $6,462 |
| MINI | Cooper S E Countryman ALL4 | $5,002 |
| Mitsubishi | Outlander PHEV | $6,587 |
| Porsche | Cayenne E-Hybrid | $6,712 |
| Porsche | Panamera 4 PHEV | $6,712 |
| Subaru | Crosstrek Hybrid | $4,502 |
| Toyota | Prius Prime Plug-in Hybrid | $4,502 |
| Toyota | RAV4 Prime Plug-In Hybrid | $7,500 |
| Volvo | S60 | $5,419 |
| Volvo | S90 | $5,419 |
| Volvo | V60 | $5,419 |
| Volvo | XC60 | $5,002 |
| Volvo | XC90 | $5,419 |
Source: Fueleconomy.gov
