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

Updated

A Tesla charging at a public EV charger
EV Incentives can drop the cost of your EV by thousands of dollars. Image source: InsideEVs

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.

Check what it would cost to get solar panels to pair with your EV

Key takeaways

  • EV incentives can help reduce the upfront costs of buying an electric vehicle.
  • You can save up to $7,500 with the federal EV tax credit depending on the size of the car’s battery, the MSRP, and your income.
  • The eligibility requirements for the federal EV tax credit are set to change in March 2023.
  • Many states and utilities offer additional incentives in the form of rebates and tax credits that can lower the cost of an EV even further.

On this page

    What is the Federal EV Incentive?

    The federal EV incentive is a tax credit worth up to $7,500 that taxpayers can take advantage of when buying a new electric vehicle in 2023. The total value of the credit depends on the size of the car’s battery. The base amount of the tax credit is $2,500, plus an additional $417 per kilowatt-hour (kWh) of battery capacity above 5 kWh. The maximum incentive value is $7,500.

    In order to get the federal tax credit for your electric vehicle purchase, the car cannot have an MSRP that exceeds $80,000 for vans, SUVs, and pickup trucks, or $55,000 for all other vehicles. Not only that, the EV must be made by a qualified manufacturer and the final assembly of the car must take place in North America.

    There are also income limitations for the buyer of the EV. Your modified adjusted gross income must be below:

    • $300,000 for married couples who file jointly
    • $225,000 for heads of households
    • $150,000 for all other filers

    EV tax credit requirements will change in March 2023. The Inflation Reduction Act of 2022 required the Department of Treasury to create new eligibility criteria for the federal EV tax credit. These are set to be released sometime in March of 2023.

    Will the EV I want qualify for the federal EV Incentive?

    The end of 2022 is a tricky time to buy an EV. The 200,000 cap on manufacturers is still in effect, meaning Tesla, GM, and Toyota are still off the table until 2023. But, cars that previously would have qualified prior to the IRA being signed no longer do, like the Volvo XC40, because they are not assembled in North America.

    So, what cars do qualify? The BMW 330e and xDrive45e, certain Ford EV models, the Nissan Leaf, and the Mercedes EQS can potentially claim the tax credit. This is quite a short list, but as new rules fall into place and manufacturers begin to adjust their supply chains, more cars will qualify.

    Unfortunately, it is hard to say what other cars will be eligible for the federal EV incentive in 2023 because many of the requirements are still being drawn up. The critical mineral requirements are not yet finalized, but the rule states that the “final assembly” for each car needs to take place within North America.

    Will the EV I want qualify for the federal EV incentive?

    The details around what EVs qualify for the federal tax credit are a bit fuzzy right now, mostly because you have to figure out which vehicles are assembled in North America. The best way to know where the EV was assembled is by entering the VIN on the Department of Energy’s website. The DOE also provides a list of EVs with a 2023 model year that were assembled in North America:

    • BMW 330e
    • Cadiallac Lyriq
    • Chevrolet Bolt EV
    • Ford E-Transit
    • Jeep Grand Cherokee 4xe
    • Wrangler 4xe
    • Nissan Leaf
    • Rivian R1S
    • Rivian R1T
    • Tesla Model 3
    • Model Y
    • Volkswagen ID.4

    Remember, these vehicles might not qualify for the full incentive once the new rules are put in place.

    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.

    The best electric vehicle (EV) incentives
    Incentive Amount Availability Notes

    Federal EV Incentive

    Up to $7,500

    Nationwide

    Tax credit for purchase of new vehicles. Value-based on battery capacity. Final assembly must occur in North America.

    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.

    Interior rendering of an EV battery
    EV car batteries are the most expensive component of an EV. Source: Car Magazine

    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.

    Estimate your EV charging savings with solar panels
     - Author of Solar Reviews

    Ana Almerini

    Marketing & Communications Manager

    Ana is the Marketing & Communications Manager at SolarReviews, working within the solar industry since 2020. With a Master's in Climate and Society and professional experience within marketing, she helps communicate the value of solar to homeowners and build out awareness of the SolarReviews brand.

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