As we head towards a greener and more sustainable future while combating climate change, electric vehicles are becoming increasingly popular choices for car buyers. To encourage the transition to zero-emission vehicles, the Federal Government provides tax incentives to EV buyers through the plug-in electric drive motor vehicle tax credit. However, the credit amounts and qualifications are constantly changing. In this blog post, we are going to discuss the EV tax credit 2023 rules and qualifications to help you make a well-informed decision while purchasing your electric vehicle.
Credit Amounts
The maximum tax credit amount available for 2023 for qualified EVs is $7,500. However, this depends on the battery size of the car. EVs with a battery capacity of less than 5 kWh do not qualify for the federal tax credit. The credit amount decreases for EVs with larger battery capacities, and once the vehicle manufacturer sells over 200,000 qualifying EVs, the tax credit amount is phased out.
Eligibility Requirements
To qualify for a tax credit of up to $7,500, a new EV or eligible Plug-in Hybrid Electric Vehicle (PHEV) must follow the rules outlined by the IRS. The vehicle’s Manufacturer’s Suggested Retail Price (MSRP) must not exceed specific limits. SUVs, pickup trucks, and vans have a threshold of $80,000, while sedans, hatchbacks, wagons, and other vehicles see the credit cut-off at $55,000. These thresholds are based on the vehicle’s MSRP, not its sale price, meaning a heavily discounted car would not qualify. For a comprehensive outline of the requirements, please visit:
https://www.irs.gov/credits-deductions/credits-for-new-clean-vehicles-purchased-in-2023-or-after
You can also visit fueleconomy.gov to complete the online eligibility form before you purchase:
https://fueleconomy.gov/feg/tax2023.shtml
Pennsylvania Incentives
Apart from the federal EV tax credit, several state-specific incentives and rebates are available for EV buyers. Buyers can qualify for these incentives in the form of tax credits, rebates, or exemptions on sales tax or registration fees. Therefore, it is essential to check state-specific incentives while purchasing an electric vehicle.
In Pennsylvania, the Department of Environmental Protection offers the Alternative Fuel Vehicle Rebate Program to promote clean, alternative fuel vehicles. Please refer to this page for more info:
https://www.dep.pa.gov/Citizens/GrantsLoansRebates/Alternative-Fuels-Incentive-Grant/pages/alternative-fuel-vehicles.aspx
Purchase Price and Income Limit
As per the 2023 regulations, a variety of vehicles including vans, SUVs, and pickup trucks should have a Manufacturer’s Suggested Retail Price (MSRP) at or below $80,000 to qualify for the tax credit. On the other hand, certain other vehicles like sedans and passenger cars have an even lower cap, requiring an MSRP of $55,000 or less. It’s worth mentioning that for used vehicles, the price cap decreases considerably, with the vehicle needing to be priced at or under $25,000 to be considered for the tax credit.
For further understanding of how the IRS defines MSRP. Please visit: https://www.irs.gov/pub/taxpros/fs-2023-08.pdf
In addition to setting a cap on the price of vehicles, the new credit regulations also establish a maximum limit for the Modified Adjusted Gross Income (MAGI) that a taxpayer can earn to be eligible for the tax credit. According to the IRS, your MAGI from either the year you received your vehicle or the preceding year can be utilized for this purpose. Thus, if your income surpasses the threshold during one year but falls under it in another, you might still qualify for the credit.
The new EV tax credit introduced in 2023 has not only set limits on the price of vehicles but also on the income of the buyers. To qualify for the new car tax credit, your household adjusted gross income must be up to $300,000. For those who are filing as head of household, the income ceiling is set at $225,000. Meanwhile, individual filers will only qualify if their income is below $150,000.
In Conclusion
Purchasing an electric car can save money in the long run, and the current EV tax credits offered provide additional incentives to buyers. However, to qualify for the tax credit, one must familiarize themselves with the eligibility criteria and credit amounts. As the world moves towards greater green initiatives to combat climate change, the policy surrounding electric vehicles will continue to change. Therefore, staying informed, up-to-date on current regulations, and monitoring policy changes is a crucial aspect of purchasing an EV.