Plug-In Electric Drive Vehicle Credit

What is Qualified Plug-In Electric Drive Motor Vehicle Credit ?

Owners and producers of specific plug-in electric drive motor vehicles, such as passenger cars, light trucks, and two-wheelers, are eligible for tax credits from the Internal Revenue Service (IRS). The tax credit can be claimed by taxpayers who own eligible automobiles by including Form 8936 with their income taxes.

Since 2008, when Internal Revenue Service adopted Section 30D to the Internal Revenue Code, the IRS has actively introduced and maintained tax credits to promote energy efficiency. The Energy Improvement and Extension Act of 2008 introduced the Qualified Plug-In Electric Drive Vehicle Tax Credit (federal EV tax credit), which is covered under this section. The Act was modified the next year, then once more in 2013 to add a select number of new cars. The influence of greenhouse gas emissions on the climate is addressed by this flurry of legislation. According to the National Conference of State Legislators (NCSL), transportation is responsible for 29% of the nation's greenhouse gas emissions as of 2021.

For the purchase of a new certified PEV with a gross vehicle weight rating of up to 14,000 pounds, an external source of energy for battery recharging, traction battery capacity of at least five kilowatt hours (kWh), and compliance with specified emission criteria, a tax credit is offered. 

Depending on the size of the electric battery, the credit for these kinds of cars ranges from $2,500 to $7,500. A car with a battery capacity of five kWh qualifies for the $2,500 minimum credit. Up to a maximum of $7,500, the credit rises by $417 for every extra kilowatt hour. Those who purchase a vehicle after December 31, 2009 are eligible for this tax benefit. Visit the Internal Revenue Service (IRS) PEV Credit website for more details, including a list of eligible vehicles and sales by manufacturer. You should also consult IRS Form 8936, which is accessible online at IRS Forms and Publications.

The Taxpayer Certainty and Disaster Tax Relief Act of 2020 increased the credit for eligible two-wheeled plug-in electric cars purchased between 2015 and the end of 2021 (but not for three-wheeled vehicles). IRC Section 30D(g) states that in order to be eligible for the credit, a new two-wheeled vehicle must be able to reach a top speed of 45 miles per hour or more, use a battery with a capacity of at least 2.5 kilowatt hours, and have a gross vehicle weight of no more than 14,000 pounds. Like it was for two- and three-wheeled cars purchased in 2012 or 2013, the credit's amount is 10% of the purchase price, up to $2,500.

What is Form 8936 ?

The Qualified Plug-in Electric Drive Motor Vehicle Credit may be claimed on an individual's tax return using IRS Form 8936. If the new plug-in electric car that the taxpayer buys satisfies certain eligibility standards, they may use Form 8936. Tax credits equal a dollar-for-dollar dollar reduction in the amount of income tax that a person owes.

Tax credit eligibility for automobiles and trucks with at least four wheels and a gross vehicle weight of less than 14,000 pounds is determined under Internal Revenue Code (IRC) Section 30D(a). A battery that can be recharged externally and has a minimum capacity of five kilowatt hours must be used by the vehicle.

Key Points of Plug-In Electric Drive Motor Vehicle Credit

  • Eligibility for the electric drive motor vehicle tax credit is determined by Internal Revenue Code 30D(a) for both two- and four-wheeled cars and small trucks.
  • For four-wheeled electric plug-in vehicles from producers that have sold more than 200,000 qualifying vehicles, the tax credit levels down over time.
  • For eligible electric and hybrid vehicles, the Qualified Plug-In Electric Drive Vehicle Tax Credit ranges from $2,500 to $7,500.
  • The tax credit is only available for brand-new car purchases; it cannot be used to pay for old or leased cars.
  • As of 2022, the tax credit gradually phases away for both Tesla and General Motors vehicles.
  • There are ongoing initiatives to change the current electric car tax benefits as of 2022, including attempts to implement income restrictions and cap the costs of qualified electric and hybrid vehicles.

How the Plug-In Electric Drive Vehicle Credit Works?

The Plug-in Electric Drive Motor Vehicle Credit is a non refundable credit. It is not possible to receive a refund for the Qualified Plug-in Electric Drive Motor Vehicle Credit. While a non-refundable credit can make your tax obligation zero, it cannot produce a refund. This implies that if your tax liability is $200 and you are eligible for a $350 credit, you will only receive a $200 credit on your return. Despite being otherwise eligible, you would not receive the credit if your tax due was zero.

Plug-In Electric Drive Vehicle Credit Phase Out:

As certain requirements are satisfied, a tax credit is termed to "phase out" when it starts to get smaller and eventually disappears. This typically indicates that the taxpayer's income exceeds the threshold. This tax credit differs from others. It phases off in accordance with the manufacturer's sales of qualified automobiles, not your income.

When a specific manufacturer sells 200,000 qualified vehicles in the US, the phaseout starts. This is a cumulative total starting on January 1, 2010, not 200,000 per year. This figure includes sales of all eligible automobiles, not just your model. Two calendar quarters after the manufacturer hits this benchmark, the phaseout starts.

The precise amount by which your tax credit will fall cannot be predicted in advance. You'll have to wait until the IRS makes the manufacturer's achievement of this 200,000 threshold public. A timetable for gradually eliminating the credit over the course of a year will also be made public.

If you purchase the vehicle during the first and second quarters of the phaseout period, the phaseout is normally reduced by 50%. But in the third and fourth quarters, it falls to 25%. After this phaseout period, you won't be eligible for the credit if you buy a car.

Who is Eligible for Plug-In Electric Drive Vehicle Credit ?

Taxpayers must have bought their two- or four-wheeled electric plug-in vehicles between 2015 and the end of 2021 to be eligible for the plug-in electric drive vehicle credit. They must also have started operating the vehicle in the year the credit is claimed. There is no tax credit for old electric vehicles; the vehicle must be brand-new at the time of purchase. The tax credit is also available for plug-in hybrid automobiles.

The drivers of rented vehicles are not eligible to use the credit. Instead, it will be given to the producer who is selling the lease. The tax credit may be partially accounted for in the lease expenses, which would be advantageous to the consumer.

In accordance with IRC 30D, the tax credit for a manufacturer's four-wheeled vehicles phases out over a 12-month period starting with the second quarter of the year following the 200,000th sale. Qualified vehicles are still eligible for 50% of the credit if bought within the first two quarters of the phaseout period or 25% of the credit if bought in the third or fourth. After the phaseout period, the manufacturer's vehicles are no longer eligible for the tax credit.

Two manufacturers—General Motors and Tesla—have reached the threshold of 200,000 certified car sales. No matter how big the battery is, a car bought from either manufacturer won't be eligible for the tax credit.

The following criteria must be met to qualify for the electric vehicle tax credit :
  • It is a plug-in hybrid or an all-electric vehicle.
  • Four wheels are on it.
  • The car wasn't leased by you.
  • You bought a brand-new car (old cars don't count).
  • You didn't buy it to resell; you did so for your own or professional usage.
  • The vehicle was produced in 2010 or after.
  • It is mainly driven in the United States.
The vehicle must additionally be certified by the manufacturer to meet extra requirements, such as :
  • It is not a converted normal vehicle; the vehicle was built by the manufacturer.
  • It is a motor vehicle as defined by Title II of the Clean Air Act.
  • Its battery has a minimum 4 kilowatt-hour capacity.
  • An external source can be used to recharge the battery.
  • Its maximum gross vehicle weight is 14,000 pounds.

Eligible Vehicles for PEV Credit

The Internal Revenue Service (IRS) provides a list of eligible vehicles on its website. You can visit the IRS website here to see a list of eligible vehicles.

How Much is Qualified Plug-In Electric Drive Vehicle Credit ?

The credit for plug-in electric drive vehicles starts at $2,500. Based on the battery's capacity, that sum may rise. If the car has a five kilowatt-hour capacity, you receive an extra $417. For each additional kilowatt-hour, you will be paid $417. Plug-in electric drive motor vehicle credit, can be valued up to $7,500 in nonrefundable credit.

How to Calculate Qualified Plug-In Electric Drive Motor Vehicle Credit ?

There are three parts to Form 8936. In Part I, your estimated credit amount is calculated; frequently, the manufacturer would have given this information together with its certification. The credit ranges from $2,500 to a maximum of $7,500 if the vehicle passes the minimal standards. The first section of Form 8936 determines your potential credit; the second and third sections divide the credit between your business and personal use of the vehicle.

How to Claim Plug-In Electric Drive Motor Vehicle Credit ?

The electric vehicle tax credit is not a reduction to you as the consumer upfront, despite the fact that automobile and motorcycle manufacturers may pitch it as such. When you buy the qualifying vehicle, your tax liability for the year is only decreased. You are still obligated to pay the agreed-upon price for the automobile in full. You will only get a credit because it is a nonrefundable tax credit if it completely eliminates your tax obligation. Beyond that, you will not be given the remaining sum back. When you file your taxes for the year after completing the form, you can include it in your filing.

For the tax year in which the vehicle was purchased and put into service, you may be eligible for the IRC 30D credit or the IRC 30D(g) credit. Schedule 3 and IRS Form 8936 must be completed and submitted with your tax return in order to claim the tax credit. Your credit will be determined by Form 8936, and you can enter it on Schedule 3 line 6f. The sum from lines 1 through 7 on Schedule 3 would be transferred to line 20 of your Form 1040 tax return.

The vehicle's personal usage is covered in Part III of Form 8936, whereas business or investment use is covered in Part II. If you purchased the car for commercial or investment purposes, you must also fill out and submit Form 3800 (General Business Credit). Even if you are subject to the Alternative Minimum Tax, you can still claim this credit.

To claim the plug-in electric drive vehicle tax credit, you need to fill out Form 8936 when you file your tax for the year. To be eligible for your tax credit and a direct dollar-for-dollar reduction of your tax obligations, a plug-in electric drive motor vehicle must meet certain requirements.

Note :
If you are claiming IRC 30D(G) credit for a two- or three-wheeled vehicle, fill out and submit Form 8834 instead.

Plug-In Electric Drive Vehicle Credit Contact

U.S. Internal Revenue Service (IRS) :

Electric Vehicle Tax Credit FAQs

Are tax credits for electric vehicles available in 2022 ?
Yes, there will be electric car tax credits in 2022 for both two- and four-wheeled vehicles. You must buy a plug-in hybrid vehicle, completely electric vehicle, or motorcycle from an authorized manufacturer. Vehicles from Tesla and General Motors are not eligible for 2022. Tax laws regarding eligibility for the Electric Vehicle Tax Credit are subject to change so be careful.

How many times can you claim the tax credit for electric vehicles ?
For each eligible vehicle, you may only submit a single credit claim. The tax credit must be applied for in the same calendar year that you buy and start using a new fully electric, plug-in hybrid, or two-wheeled vehicle.
However, you can still apply for the tax credit for the other vehicle even if you buy a different qualifying fully electric or plug-in hybrid vehicle in a different year or two different qualified vehicles in the same year. In that respect, it is not a once-in-a-lifetime tax credit.

Does the Electric Vehicle Tax Credit Have an Income Limit ?
The U.S. Senate passed a non-binding resolution in August 2021 to cap the cost of electric vehicles that qualify for the present tax credit at $40,000. Additionally, it would restrict buyers' income to that of $100,000 or less. Before becoming a law, the proposal still needs to be approved by the US House of Representatives.