How Does the Federal Tax Credit for Electric Cars Work?

How Does the Federal Tax Credit for Electric Cars Work

How does the federal tax credit for electric cars work? Many of us have been under financial pressure, with fuel prices rising every other day.

As difficult as it’s to say goodbye to long drives and trips around the city, you don’t have to do it entirely and have a choice in the matter.

With advancements and technological developments, we now have electric and hybrid cars that help you beat unnecessary fuel costs, but the question is, how much are these cars for?

The lack of fuel expense makes up in terms of the price of the vehicle. It indeed is towards the pricier side, but it indeed is an investment. 

So if you are planning to purchase one of the newest electric cars, we advise you to check how much bucks you can save in terms of tax. Before you start skimming the internet.

We have all the relevant information you need to find out how the federal tax credit for electric cars works.

How Can You Find Out if You Are Eligible for Tax Credit?

It may be confusing for you to think about how the tax credit works for electric works. But let us remind you that passing the criteria isn’t very tough; there are two points:

  1. You need to be the original/real owner of the qualified plug-in vehicle. 
  2. The car should be bought in the year 2010 or above. 

All those who want a full tax credit will have to be part of the first 200,000 people who bought electric cars from their listed manufacturers.

At this point, you will have to be very quick about it, and apart from this, you can still qualify for partial credit.

How Does the Federal Tax Credit for Electric Car Work?

Americans surely need encouragement when it comes to taxes, and the federal government knows that.

The federal tax credit is an incentive that encourages people in the States to buy electric cars and hybrid vehicles; they lower the price upfront.

Under the Revenue Service Code Section 30D, the credit is based on the vehicle’s battery capacity and needs to be worth $7,500. 

The federal tax credits on electric cars provide a reduction on the basis of dollar-for-dollar, which shows on your income tax bill.

This means a $7,500 federal tax credit can save you $7,500 in taxes. These are a refund or a reduction of the taxes that you should be paying. Talking to a tax professional can be insightful. 

How Does the Federal $7,500 Tax Credit for Electric Cars Work?

For those who are wondering how does the federal tax credit for electric cars work then, here’s a little insight and understanding of the process. 

  • Your federal tax credit is based on which vehicle you are planning to get. 
  • After you purchase your vehicle, you will have to fill out a form known as form 8936 with your entire tax returns. 
  • The filing process will then apply the tax credit to your monthly taxes. 
  • Apply the tax credit the year your purchase your vehicle. 

Moreover, you can amend your tax returns later onwards. So for people who have purchased an electric car or are planning to purchase one for themselves, then keep in mind that you will eventually end up with a massive tax refund in your mail. Or you can pay a lesser amount than you would have paid. 

You can get all your eligibility details through the IRS website. The best way is to get a tax professional onboard with you. 

Vehicles that Qualify for Tax Rebate

All those who were wondering how does the federal tax credit for electric cars work? You now have all the information regarding it, but it’s important to know whether your vehicle qualifies for the tax credit. 

The U.S. Department of Energy has shared with users a complete chart showing all the vehicles that are eligible for the credit and if your vehicle is phased out in this. 

In case your vehicle is part o the phase-out category, then it means from the 200,000 eligible vehicles, the vehicle count will gradually decrease.

So even though you can still get the tax credit but in time, the government starts reducing the credit percentage.

In the initial stages, the amount can be 50%, then it drops to 30%, then to 25%, and then finally to 0%. 


You now have answers to all your questions, so if you have been wondering how does the federal tax credit on electric cars works, then you are aware of it now.

The eligibility of your vehicle now depends on some of the factors that we have mentioned above. Make sure that you register a vehicle immediately when you purchase it.

This helps you avoid any cons and ensures your vehicle is in place. Now the question is will your car be part of the 200,000 vehicles made by the manufacturer or not?

Find that out so you can avail yourself of the tax credits and avoid paying heft amounts against your income taxes! 

In case you do end up missing out, then you can still check out different State and Government plans that offer benefits to electric car users.

They have multiple offers to reduce the burden and make your lives easier. We do recommend investing in electric cars because the future sure is technological!

Keep visiting for all the updates about the vehicle and the ways to enjoy tax credits!

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