How to Claim $7,500 EV Tax Credit Before the Filing Season?

In the year 2011, President Barack Obama pledged to make America the first nation to build one million electric vehicles by 2015. Obama’s administration even allocated $2.4 billion federal grants in this regard. 

However, higher price points of electric vehicles, underdeveloped batteries and lower fuel costs discourage consumers from embracing electric vehicles. It wasn’t until 2018, when congress decided to preserve EV Tax credit benefits, buyers became interested. 

In this blog, let’s understand what EV tax credit benefits USA is offering and how you can avail them.  If you’re one of those people who is considering shifting to electric vehicles, this information is too essential to miss out on. 

What are Electric Vehicle Tax Credits?

Electric Vehicles (EVs) are famously known to lower fuel costs and reduce emissions. The US government is now aiming for 50% of all new vehicles to be electric by 2030.  To encourage more businesses and customers towards EVs, the US government started incentivizing the consumers in the form of tax credits. These tax credits are part of the Inflation Reduction Act (2022) under ‘clean vehicle tax credits.  

The amount of tax credits ranges from 3,750 USD to 7,500 USD for new EVs. There’s also a $4,000 credit for used ones.  

The tax credits on EVs are nonrefundable. What does it mean? If your tax liability out of payable taxes is zero after the addition of tax credits, the remaining amount is not refundable.  For example, if you pay $500 as taxes. And your tax credits after purchasing an EV is at $3,500. The remaining $3,000 can’t be refunded to you. And you can’t redeem this $3,000 in the next tax filing session, i.e., next financial year.  

How to Qualify for EV Tax Credit Benefits

Did you know that out of more than 100 Electrical Vehicle models sold in the US, only 22 models are eligible for EV tax credit benefits? Yes, the US has strict regulations and criteria when it comes to EVs. So, read the following eligibility criteria carefully to understand which EV model comes under Tax Credits.  

To be eligible for EV tax credit, the vehicle must be having the following requirements:  

• EV must be a new vehicle or a used vehicle, and it should be used predominantly in the US.  
• EV must have at least 7 kilowatt-hours battery capacity, and it should weigh less than 14,000 pounds (or 6350 Kilograms).  
• EV must be produced by a qualified manufacturer anywhere in the world complying with US regulations. However, it must be finally assembled only in North America.  
• EV must meet critical mineral and battery component requirements.  
• EV must not exceed the retail price of $80,000 for vans and pickup trucks; and $55,000 for any other vehicles (like cars and two-wheelers).

Any citizen of the USA who has bought an EV after 2023 is eligible to claim the tax credits. But there are a few conditions. EV Tax Credit is only applicable if the person’s Adjusted Gross Income (AGI) is less than $300,000 for married couples, $223,000 for heads of households and $150,000 for the remaining others.  

You can use either the AGI of the year in which you made the purchase or the previous year, whichever is less.  

Total Amount of Electric Vehicle Tax Credit Benefits 

The tax benefits depend on when you buy the Electronic Vehicle. It doesn’t matter on what date you have received the EV. What really matters is the date of Product-in-service. It means the date when the company that sells EVs starts its paperwork, including the accounting documents, is what really counts. So, the Tax benefits vary on this in-service date.  

If the EV was placed in-service between January 1 and April 17, 2023, then, you are eligible to claim the following amount: 

• Flat $2,500 as base amount,  
• An additional $417 if the EV has at least 7-Kilowatt hours (KW) battery capacity.  
• Additional $417 for each kilowatt-hour of battery capacity beyond 5 kilowatts hours.  

• If the EV is purchased beyond April 28, 2023, and after, then you are eligible to claim the following amount: 
• If the EV achieves only the critical minerals requirement, then you will get $3,750.  
• If the EV achieves only the battery components requirement, then you will get $3,750.

Therefore, you are eligible to get a total of $7,500 if both requirements are met for the EV you purchase.  

So, it is a prerequisite to have good research done before buying a good EV. You can check if your choice of vehicle is eligible for EV tax credit or not on this website.  

You should also remember that when you buy an EV, your seller must provide the documents containing your details and the details of the EV purchased within three days to the Internal Revenue Service (IRS). Please get your copy of the confirmation. 

How to Claim $7,500 EV Tax Credit 

To claim this EV tax credit, you must fill Form 8936 (Qualified Plug-in Electric Drive Motor Vehicle Credit form) while you are filling your tax returns. It might be a bit of a complex process but follow this step-by-step guide to understand it better. If you find this whole process tiresome, there is a much simpler way to claim your tax credits.  

You Don’t Have to Wait Until the Next Tax Filing Season 

Do you want to save money immediately, without waiting till your income tax filing? You can do this by transferring the credits to the seller. This process is called ‘transfer election’. It will reduce the tax credited amount from your final bill. So, you can now buy the EV at a discounted price.

If you follow this process and the seller has taken care of your time-of-sale report, you don’t need to fill out Form 8936. You have already availed your benefits of tax credited amount through discount.

Get Ready to Charge Forward 

Electric vehicle tax credits in the USA make going electric more affordable than ever. Research available EVs, ensure they meet eligibility requirements, and get ready to experience the clean energy revolution while saving money. So, visit your local dealership and explore the exciting world of electric vehicles.