Electric vehicle (EV) incentives: What you need to know

As a relatively new technology, electric vehicles (EVs) tend to be more expensive than gas-powered cars. The higher price tag can discourage many car buyers. This is where EV incentives come in. Incentives can lower the upfront cost of electric cars, making it easier for drivers to afford them.

The most popular (and most valuable) incentive is the federal EV tax credit, worth up to $7,500. But, it comes with a few caveats and it will not be available for every vehicle.

Additionally, many states offer their own incentives in the form of rebates or tax incentives, giving you more ways to save.

How much is the federal EV incentive worth?

The federal EV incentive is a tax credit worth up to $7,500 that taxpayers can get when buying a new electric vehicle or plug-in hybrid in 2023. The total value of the tax credit depends on two factors:

1. If the vehicle’s battery meets critical mineral requirements, and

2. If the vehicle’s battery meets battery component requirements.

EVs that do not meet these battery standards will not be eligible for a tax credit. If the battery meets one requirement, it qualifies for a tax credit of $3,750. To get the full $7,500, the EV must meet both criteria.

There are a few other eligibility requirements for the EV tax credit to keep in mind, including a final assembly requirement, an MSRP requirement, and an income requirement.

Final assembly requirement

EVs cannot receive the federal tax credit unless their final assembly takes place in North America. You can find a vehicle's place of assembly by looking up its Vehicle Identification Number (VIN) on the Department of Energy’s website.

MSRP limit

To receive the tax credit, EVs cannot exceed certain MSRP limits. The maximum MSRP limits vary depending on the vehicle type:

• Vans: $80,000

• SUVs: $80,000

• Pick-up trucks: $80,000

• Other: $55,000

If a vehicle exceeds the outlined MSRP limit, it will not be eligible for a tax credit. Keep in mind that physical add-ons to the car will add to the base MSRP and potentially disqualify the vehicle from the tax credit.

Taxes, fees, and software add-ons, like Tesla’s autopilot, do not count toward the MSRP. The tax credit is based on the MSRP of the EV, not the final price you pay.

Income limit

There are income caps in place for the EV tax credit, so the credit is used by those who need it the most. The income eligibility limits are based on your adjusted gross income (AGI) and are as follows:

• Married filing jointly: $300,000

• Head of household: $225,000

• All other taxpayers: $150,000

What cars qualify for the federal EV tax credit incentive?

The critical minerals and battery assembly requirements have narrowed down the list for the full tax credit to just nine EV models, while three can receive the partial $3,750 credit:

Model	Tax credit value	Est. starting MSRP	Est. cost after tax credit
2023 - 2024 Cadillac Lyriq	$7,500	$58,590	$51,090
2024 Chevrolet Blazer	$7,500	$44,995	$37,495
2022 - 2023 Chevrolet Bolt	$7,500	$26,500	$19,000
2022 - 2023 Chevrolet Bolt EUV	$7,500	$27,800	$20,300
2024 Chevrolet Equinox	$7,500	$30,000	$22,500
2024 Chevrolet Silverado	$7,500	$39,900	$32,400
2022 - 2023 Ford F-150 Lightning (Standard and Extended Battery Range)	$7,500	$59,974	$52,474
2022 - 2023 Tesla Model 3 Performance	$7,500	$52,990	$45,490
2022 - 2023 Tesla Model Y (All-wheel drive, Long Range, and Performance)	$7,500	$49,990	$42,490
2023 Volkswagen ID. 4 AWD PRO, PRO, S, and Standard models	$7,500	$38,995	$31,495
2023 Rivian R1S	$3,750	$79,800	$76,050
2023 Rivian R1T	$3,750	$74,800	$71,050
2022 - 2023 Ford E-Transit	$3,750	$49,575	$45,825
2022 - 2023 Mustang Mach-E (Standard and Extended Battery Range)	$3,750	$45,995	$42,245
2022 - 2023 Tesla Model 3 Standard Range Rear Wheel Drive	$3,750	$41,990	$38,240

Some plug-in hybrid models are also eligible for the tax credit, including the hybrid Chrysler Pacifica PHEV, Lincoln Aviator and Corsair Grand Touring, Ford Escape Plug-in Hybrid, Jeep Grand Cherokee Hybrid 4xe, and the Jeep Wrangler PHEV 4xe.

Is there a tax credit for used EVs?

Yes! Used EVs can receive a tax credit of up to $4,000. There are a few rules for used electric cars to get the tax credit:

• Price cannot exceed $25,000

• Used vehicles can only receive a tax credit once in their lifetime

• Individuals can only claim the used EV tax credit once every three years

• The car must be at least two model years old

• You must purchase it from a dealer

• Your adjusted gross income cannot exceed $75,000 for individuals, $112,500 as head of household, or $150,000 when filed jointly.

What state and utility incentives are available?

State and utility incentives vary greatly based on where you live. Some states offer nothing, some offer only time of use utility rate reductions - which you would get regardless of if you owned an EV - while others offer such great incentives that you can get an EV for incredibly cheap.

One of the best types of incentives is a rebate - because it is essentially cash in your pocket - as opposed to tax incentives, which you might not qualify for. New Jersey, for instance, offers a great EV rebate of up to $4,000 to anyone buying an EV. What’s great is that this incentive is in addition to the tax credit, so you could potentially save $11,500 on an EV, a huge reduction in the cost.

Many states and utility companies also offer rebates for installing electric vehicle chargers in your home. For example, customers of LADWP  in California can receive a $1,500 rebate for installing a Level 2 EV charger! While this doesn’t lower the upfront cost of the vehicle, it does help with lowering the cost of a charger, which is something many homeowners forget about when switching to an EV.

Top EV incentives

Here are the most significant incentives currently available for the purchase of an EV.

Incentive	Amount	Availability	Notes
Federal EV Incentive	Up to $7,500	Nationwide	Tax credit for purchasing qualifying new EV and plug-in hybrids.
CT EV	Up to $9,500	Connecticut	Rebate available for residents who purchase a qualifying EV.
NJ EV	Up to $5,000	New Jersey	NJ residents can receive a rebate based on the range of the EV, in miles.
CO EV	Up to $2,800	Colorado	Tax credit is eligible for Colorado residents that purchase an EV.
CA EV	Up to $7,000	California	The rebate amount varies based on where you live, your electric utility provider, your household income, and the car type.

There are many other smaller EV incentives on offer across the U.S., mostly from utilities. With a bit of research, you should be able to find all applicable incentives in your area; a local car dealership can point you in the right direction.

If you live somewhere with no additional incentives - and find that EVs are out of your budget - there’s still good news. The cost of EVs is decreasing overall, and will soon be on par with the upfront cost of a gas-powered car.

The true cost of EVs

As of September 2022, the average cost of an EV is about $66,000, while a gas-powered car is around $47,000. Obviously, the EV cost is higher than the gas-powered car, but there are a lot of factors at play that have been driving up the cost of all cars - from supply chain issues to higher labor costs.

The clean vehicle tax credit can help reduce the upfront cost of an EV, but it is also important to keep in mind that an EV is cheaper to maintain and run over its lifetime, up to 40% cheaper. Think about it, no gas to fill up and zero oil changes.

Keep in mind that the cost averages we've mentioned are just that; averages. The cheapest fully electric car you can buy is the Nissan Leaf starting at around $28,040. On the other side, there are gas-powered cars that start as low as $16,595, a much more practical price for many Americans.

The reason EVs tend to have a higher price is that the cost of the batteries within them are expensive. This is due to the high cost of their raw materials, as well as the fact that they are still relatively new and have not yet become as economical to manufacture.

But as battery production becomes more efficient and widespread, the cost of EVs will continue to decrease. Additionally, many EVs are “luxury” vehicles that appeal to early adopters who can afford the price tag. As they become more mainstream and easier to manufacture, cars with a price that appeals to more consumers will follow.

Does an EV make sense?

There are many benefits to owning an electric car, from reduced maintenance to a lower carbon footprint.

Although the upfront cost might be more expensive than traditional cars, an EV can still make financial sense. Federal EV incentives will help reduce the initial cost of the car, and the overall lifetime savings will keep your car ownership costs low.

Pairing your EV with solar panels will make the costs even lower, further increasing your savings. Solar panels are an attractive investment thanks to a 30% tax credit and higher-than-ever electric prices. Now is the time to go all out on renewable energy, adding solar panels to charge up your electric vehicle, saving you money for years to come.