Electric vehicles have gone from a niche product to a rapidly growing share of the auto market in just a few short years. This dramatic rise owes much to the introduction of government tax incentives aimed at convincing consumers to go electric. Of these, the federal electric vehicle tax credit stands as one of the most substantial and impactful policies spurring EV adoption in the United States.
With recent updates to the credit plus an expanding range of plug-in hybrid and fully electric models to choose from, there‘s never been a better time to purchase an EV and cash in on savings. This comprehensive guide will provide extensive background on federal EV tax credits, analyze their role in shaping the auto market, and detail which exciting new vehicles currently qualify for purchase incentives.
A Thorough History and Explanation of the Federal EV Tax Credit
While electric cars first appeared over a century ago, they remained rare curiosities until recently. To help kickstart the modern electric vehicle era, Congress introduced a federal tax credit for qualified electric drive vehicles as part of the 2008 Emergency Economic Stabilization Act.
The credit amounts to $7,500 off the buyer‘s tax bill for new electric vehicles purchased in or after 2010. The full $7,500 amount requires at least a 16 kilowatt-hour battery capacity. Vehicles with smaller 5-16 kWh batteries qualify for a reduced credit of $2,500 to $4,000 based on battery size.
Importantly, the credit is structured as a reduction in federal income tax liability, not merely a refund. This means if a buyer owes less than $7,500 in federal taxes for the year, the credit will be less than the full amount. However, any unused credit can be carried forward to offset future tax obligations.
The policy was designed to make pricey early electric vehicles more affordable and stimulate consumer adoption. However, to prevent any one automaker from receiving an excessive competitive advantage, credits begin phaseout once a manufacturer sells 200,000 qualifying EVs in the US. The recent Inflation Reduction Act removed the previous overall cap per company, but added requirements for battery and vehicle assembly in North America to align with domestic manufacturing incentives.
Various studies have confirmed the effectiveness of federal tax credits in driving EV sales. A 2020 study by researchers at the National Bureau of Economic Research found tax credits boosted overall electric vehicle adoption by over 30% in the previous decade. The credits made EV purchases more appealing by discounting upfront sticker prices by up to $7,500.
Since EV tax credits were first introduced, more than 2 million individual consumers have benefited from credits totaling over $16 billion, according to Department of Energy data. With credits applying to an expanding range of models, EVs reaching pricing parity with gas cars, and rising fuel prices, EV sales are accelerating rapidly. Consumers purchased over 600,000 EVs in 2021, more than doubling 2020 volumes. IHS Markit forecasts US EV sales surpassing 3 million by 2025, representing over 20% of the market.
US electric vehicle sales have experienced dramatic growth since EV tax credits were introduced over a decade ago. Source: IHS Markit
How Do Phaseouts Work, and Which Automakers Are Impacted?
To maximize potential savings, it‘s important for consumers to understand which automakers are nearing their 200,000 vehicle limit which triggers the start of a phaseout period. Once 200,000 cumulative EVs have been sold in the US, the $7,500 credit is reduced to $3,750 for 2 calendar quarters. Then it drops again to $1,875 for 2 more quarters before being phased out entirely.
Here is the status of major manufacturers:
- Tesla and GM – Have both exceeded the threshold and seen credits fully phase out
- Toyota – Will hit limit in Q3/Q4 2022, phaseout begins 2023
- Ford – Close to limit, will likely start phaseout in 2023
- Stellantis (Chrysler and Fiat brands) – Has over 50% of credits remaining
- Most others (including German brands) – Remain a long way from hitting threshold
This means purchasing a new Tesla or GM electric vehicle no longer qualifies for credits, while other brands still allow buyers to claim the full $7,500 amount. However, the timeline is limited, emphasizing the advantage of buying soon while credits remain available. Any EV purchased before an automaker crosses the cumulative sales threshold will receive the tax incentive, even if claimed in a later tax year when credits have expired.
6 Exciting Plug-In Hybrid and Electric Vehicles Eligible for Credits
Now that we‘ve covered the essential background of the federal EV tax credit, let‘s examine some of top models currently qualifying for purchase incentives in 2022 and 2023.
The Nissan Leaf arguably launched the modern era of affordable, mass-market EVs when it debuted for 2011. Now in its second generation, the 2022 Leaf offers two battery options:
- Standard 40 kWh – 149 miles of range, starting around $28,000
- Leaf Plus 62 kWh – 215-226 mile range, starting around $35,000
With competitive pricing and driving range, plus Nissan still having ample credits remaining, the tried-and-true Leaf lets buyers tap into the maximum $7,500 federal tax credit along with state incentives where offered.
The 2022 Nissan Leaf comes in Standard or Leaf Plus versions to suit different range needs. Photo: Nissan
One of the most impressively designed new entrants in the electric vehicle segment is Kia‘s EV6. Built on parent company Hyundai‘s dedicated E-GMP platform, the 2023 EV6 pops with wind-cheating styling and thrilling performance. Its 77.4 kWh battery feeds either a 168kW rear-motor or 239kW dual-motor AWD system, delivering up to 310 miles of range. With ultra-fast 800V charging, the EV6 recharges from 10-80% in under 20 minutes. This vision of the future of electric driving carries a starting price around $41,000.
The innovative 2023 Kia EV6 combines head-turning styling with ultra-fast charging. Photo: Kia
Hyundai Ioniq 5
Sharing the same underlying architecture as the EV6, the Hyundai Ioniq 5 crossover provides similar exhilarating performance with a slightly tamer design. Its 77.4 kWh battery enables up to 303 miles of driving on a charge. Clean, uncluttered styling provides a spacious interior experience focused on sustainability. With competitive pricing in the low $40,000s and appealing range, the Ioniq 5 is among the most exciting new EVs eligible for the full $7,500 tax credit.
The 2022 Hyundai Ioniq 5 pops with pixelated styling and leading-edge EV engineering. Photo: Hyundai
Jeep Wrangler 4xe
For buyers wanting to go green but who aren‘t ready to abandon the capabilities of a rugged body-on-frame SUV, the Jeep Wrangler 4xe plug-in hybrid hits a sweet spot. Motivated by a turbo 2.0L gas engine and two electric motors, the Wrangler 4xe can trek 21 miles on electric power alone. Electric torque combines with Jeep‘s Trail Rated 4×4 prowess to conquer off-road terrain while providing quiet, smooth commuting. Starting at around $55,000, the Wrangler 4xe qualifies for up to a $7,500 federal tax credit, helping mitigate the plug-in premium.
The 2023 Jeep Wrangler 4xe rewards adventurous driving on- and off-road. Photo: Jeep
Ford F-150 Lightning
One of the most hotly anticipated new EV models is the 2022 Ford F-150 Lightning, bringing zero-emissions driving to America‘s best-selling vehicle. The electric F-150 is available with standard- or extended-range batteries providing:
- 230 miles range (standard)
- 320 miles range (extended)
Offering up to 563 horsepower and immense torque, the Lightning can haul heavy loads and tow trailers with quiet, seamless power. With Ford still having substantial credits remaining, buyers can claim the full $7,500 tax credit plus available state incentives. With pricing starting at $41,000, the Lightning brings EVs firmly into the mainstream.
The 2023 Ford F-150 Lightning brings no-compromise EV capability to America‘s best-selling pickup. Photo: Ford
For buyers interested in electric driving but who want luxury and performance, the 2023 BMW 330e plug-in hybrid sedan is compelling. Combining a turbo 2.0L engine with an electric motor, the 330e produces 288 horsepower while still achieving 68 MPGe. Its 12 kWh battery enables 23 miles of emission-free electric driving, allowing many trips to be completed gas-free. With handling tuned by BMW‘s engineers, the 330e brings reduced environmental impact to the brand‘s renowned driving dynamics. The PHEV powertrain qualifies for a $4,662 tax credit, while pricing starts around $45,000 before any incentives.
The 2023 BMW 330e plug-in hybrid provides up to 23 miles of electric driving range. Photo: BMW
Leveraging Tax Credits as Part of the Electric Vehicle Transition
For consumers looking to join the electric mobility revolution, few purchase incentives are more impactful than the federal EV tax credit. With credits of $7,500 still widely available, and new models from SUVs to pickup trucks eligible, tapping into credits can dramatically reduce the effective starting price.
However, buyers need to factor in purchase timing as some automakers enter phaseout periods this year and next. Carefully researching the latest federal qualifications along with any state or local incentives is key to maximizing savings. Test driving different EV models allows finding one best aligned with driving needs.
While the EV transition will take time, expanded electric vehicle choices plus available tax credits make now an opportune window for consumers to experience the performance, tech and reduced environmental impact of electric mobility. With regulators emphasizing further emission reductions in the future, purchasing or leasing an eligible EV today can help buyers lock in savings before credits sunset.