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Electric & Hybrid Car Tax Credits [2021 Simple Guide]

electric car incentives

electric car incentives

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.

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

vehicle charging stationThere 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.

StateState IncentivesUtility Incentives
AlabamaNo emissions testing requiredGrants for EVSE installation
Discounted rate if charging between 9PM - 5AM
Plug-In Electric Vehicle (PEV) Charging Rate Incentive
AlaskaDiscounted charging rate during off-peak hours
ArizonaReduced Vehicle License Tax and carpool lane accessReduced electricity rates based on time-of-use
ArkansasNo 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
ColoradoIncome 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
ConnecticutRebate between $500 and $3,000
No emissions testing required
Free metered parking in New Haven
Up to $600 rebate for Level 2 EVSE
DelawareUP $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
FloridaUp $1,000 rebate to purchase/lease a PHEV
HOV lane access
No emissions testing required
Rebates for EVSE installation
GeorgiaEligible for HOV and HOT lanesDiscounted charging rate from 11PM - 7AM
Rebate for Level 2 EVSE installation
HawaiiEligible 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
IdahoNo emissions testing required50% of project costs, up to $7,500 per site for Level 1 or 2 EVSE
IllinoisReduced registration fee and no emissions testing required
Discounted charging rate during off-peak hours
IndianaNo emissions testing requiredDiscounted charging rate during off-peak hours
Indiana & Michigan Power offers a $500 enrollment incentive for off-peak charging
IowaNo emissions testing required
Rebate for Level 2 EVSE
Plug-In Electric Vehicle (PEV) Fee
KansasNo emissions testing required
KentuckyNo emissions testing required
LouisianaTax credit of 10% of vehicle cost, up to $2,500
No emissions testing required
$250 rebate for Level 2 EVSE
MaineUp to $2,000 rebateDiscounted charging rate during off-peak hours
MarylandOne-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
MassachusettsNo 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.
MichiganNo emissions testing requiredDiscounted charging rate during off-peak hours
Up to $500 to install Level 2 EVSE
MinnesotaNo emissions testing requiredDiscounted charging rate during off-peak hours
Free charging from wind energy
$500 rebate for Level 2 EVSE
MississippiNo emissions testing required$250 rebate for Level 2 EVSE
MissouriNo emissions testing required; $78.50 annual fee
MontanaNo emissions testing required
Up to $1,000 tax credit to switch
NebraskaLower interest rate loansRebates for Level 2 EVSE
NevadaEligible for HOV lanes
No emissions testing required
Free metered parking
Discounted charging rate during off-peak hours
New Hampshire$1,000 rebate for purchase/leaseDiscounted charging rate during off-peak hours
New JerseyUp to $5,000 rebate on purchase/lease
Sales tax and emission testing exemption
Discounted tolls
New MexicoNo emissions testing required
New YorkUp to $2,000 rebate
No emissions testing required
Discounted tolls
Discounted charging rate during off-peak hours
North CarolinaDiscounted charging rate during off-peak hours
Rebates for Level 2 EVSE
North Dakota
OhioNo emissions testing required after one-time inspectionLease program for Level 2 EVSE
Oklahoma75% cost reduction on alternative fuel vehicle
OregonUp to $2,500 rebate to replace or new purchaseDiscounted charging rate during off-peak hours
$500 rebate for Level 2 EVSE
PennsylvaniaUp to $1,500 rebateLease program for Level 2 EVSE
Rhode IslandRebates to purchase/lease
No emissions testing required
South Carolina
South DakotaNo emissions testing required
TennesseeNo emissions testing required$400 rebate for Level 2 EVSE
TexasRebates 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
VermontUp 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
VirginiaNo emissions testing required
$2,500 rebate
WashingtonSales tax exemption
No emission testing required; $100 registration fee
Tax credit for 50% of costs of home charging installation, up to $1,000
West VirginiaNo emissions testing requiredLease program for Level 2 EVSE
WisconsinNo emissions testing required
Discounted charging rate during off-peak hours
Alliant Energy is offering a $500 rebate for EV home charging installation
WyomingNo 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.

MakeModelFederal Tax Credit
Audie-tron Sportback$7,500
Audie-tron SUV$7,500
BMWi3$7,500
ChevroletBolt EVPhased Out - N/A
FordMustang Mach-E$7,500
HyundaiIONIQ Electric$7,500
HyundaiKona Electric$7,500
JaguarI-PACE$7,500
KiaNiro EV$7,500
MiniCooper Hardtop Electric$7,500
NissanLeaf$7,500
PolestarPolestar 2$7,500
PorscheTaycan$7,500
TeslaAll ModelsPhased Out - N/A
VolkswagenID.4$7,500
VolvoXC40 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.

MakeModelIncentive
AudiA7 55 TFSI e Quattro$6,712
AudiA8 L 60 TFSI e Quattro $6,712
AudiQ5 55 TFSI e Quattro $6,712
BMWX3 xDrive30e$5,836
BMWX5 xDrive45e$7,500
BMW330e$5,836
BMW330e xDrive $5,836
BMW530e$5,836
BMW530e xDrive$5,836
BMW745e xDrive$5,836
GMAll ModelsPhased Out - N/A
ChryslerPacifica PHEV$7,500
FordEscape Plug-In Hybrid$6,843
FordFusion Energi$4,609
HondaClarity Plug-In Hybrid$7,500
HyundaiIoniq Plug-In Hybrid Electric Vehicle$4,543
JeepWrangler PHEV$7,500
KiaOptima Plug-In Hybrid$4,919
KiaNiro Plug-in Hybrid$4,543
Land RoverRange Rover PHEV$6,295
Land RoverRange Rover Sport PHEV$6,295
LincolnAviator Grand Touring$6,534
LincolnCorsair Reserve Grand Touring$6,843
Mercedes-BenzGLC350e 4M EQ$6,462
Mercedes-BenzS560e EQ PHEV$6,462
MINICooper S E Countryman ALL4$5,002
MitsubishiOutlander PHEV$6,587
Porsche Cayenne E-Hybrid$6,712
PorschePanamera 4 PHEV$6,712
SubaruCrosstrek Hybrid$4,502
ToyotaPrius Prime Plug-in Hybrid$4,502
ToyotaRAV4 Prime Plug-In Hybrid $7,500
VolvoS60$5,419
VolvoS90$5,419
VolvoV60$5,419
VolvoXC60$5,002
VolvoXC90$5,419

Source: Fueleconomy.gov

Frequently Asked Questions

Do hybrid cars qualify for the tax credit?

The federal EV tax credit is based on the capacity of the vehicle’s battery back. A fully electric vehicle has more battery capacity than a hybrid model, so hybrid vehicles do not receive the full $7,500 incentive. However, plug-in hybrids can receive an incentive starting at $2,500 plus $417 for every 5kWh of battery capacity.

Is there an income limit for the EV tax credit?

There is no income limit on the EV tax credit, but you must have a federal tax liability in the year of purchase to claim the tax credit. For example, if you owe $5,000 in federal taxes, you can only claim a credit of up to $5,000, even if the EV qualifies for the maximum $7,500 credit.

What cars qualify for the federal tax credit?

Many different EVs qualify for the EV tax credit. Some examples include the Audi e-Tron SUV, Kia Niro EV, and Nissan Leaf.

Are electric vehicles tax-free?

No, you still have to pay the sales tax on the purchase of an EV vehicle. However, you may be eligible to get a tax credit on your income tax for that year. In addition, some states may charge extra fees to EV drivers due to declining gas tax revenue.