Plug-In Hybrid and EV Tax Credits

Tax Credit
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Tax Credit for Buying a Hybrid or EV

Important: As part of the Inflation Reduction Act, both plug-in hybrids and electric vehicles got a reworked credit for 2023 and beyond. Get the details here: Clean Vehicle Tax Credit for EVs and Hybrids.

If you purchased a plug-in hybrid motor vehicle , you may be able to claim credit on your next tax return. You may also be able to amend a tax return to claim credit if you purchased it in a previous year and owed taxes. This tax credit is nonrefundable and will only offset your tax liability for a given tax year; the hybrid or EV tax credit can help if you are self-employed and do not have taxes withheld from your pay.

The hybrid tax credit is the same as the EV tax credit for your IRS return. The Clean Vehicle Credit - formally the Qualified Plug-In Electric Drive Motor Vehicle Credit - can be worth up to $7,500 in nonrefundable credit. It applies to plug-in hybrid vehicles, or PHEVs, and plug-in electric vehicles, EVs or PEVs.

Key Points of the Hybrid and EV Tax Credit:

• Is there a tax credit for buying a hybrid car or electric vehicle? Yes, hybrid and electric vehicles may not be a tax write off, but may instead be eligible for a credit on your return.
• You may be able to get a maximum of $7,500 towards your taxes on your tax return.
• The hybrid tax credit will not increase your refund because it is nonrefundable.
• You don't get the hybrid tax credit right away; this money is claimed on a tax return, so it cannot be used to purchase the vehicle directly - this is expected to be available in 2024.
• Considering buying a hybrid? These vehicles will continue to be manufactured for sale for years; claim credit for your investment on your tax return.

When you prepare and e-file your next tax return on eFile.com, you don't need to worry about which of the many federal tax credits you qualify to claim on your tax return. Simply answer a couple of questions and the eFile app will select the correct tax credit form(s) for you to complete. The app will also calculate and enter your credit amount on your return plus other tax credits you may qualify for. See how much your tax refund or tax liability could be and prepare to prepare for Tax Day.

Clean Vehicle Tax Credit for Hybrids

This federal EV credit can be claimed for a qualified plug-in hybrid vehicle that was put into service in the U.S. during the year. The vehicle has a simple set of guidelines to meet:

• The vehicle in question weighs less than 14,000 pounds,
• It is powered significantly by electric motor which holds a minimum of 5 kilowatt hours and can be charged externally, and
• The vehicle was purchased new.
• There are some more specific qualifications and on the full EV Tax Credit page, including price limits, income limits, assembly requirements, and more.

Generally, most new plug-in hybrids meet these conditions.

A qualifying vehicle is not a traditional hybrid electric vehicle, or HEV. Some popular hybrid vehicles that are not eligible for the credit include the non-plug-in models of the Toyota Prius, Toyota RAV4 Hybrid, Toyota Camry Hybrid, Ford Fusion and Milan Hybrids, and the Honda Insight and Accord Hybrids. The plug-in versions of these models, however, do qualify.

The federal hybrid and EV tax credit works by giving you a nonrefundable credit on your income tax return. This IRS tax credit can be worth anywhere from $2,500 to $7,500 determined by the power storage of the battery. In general, fully electric vehicles can claim more of the credit than plug-in hybrid vehicles as their battery has more storage. Note that this tax credit is nonrefundable and will not generate a tax refund on its own. In other words, if you owe $2,500 on your tax return, but claim credit for a PHEV worth $5,000, you will receive $2,500 and the remaining $2,500 will be eliminated. It does not carry forward and needs to be used in the year the vehicle was purchased.

The credit may be applied to certain two-wheeled vehicles as well. This follows the same guidelines as a four-wheeled vehicle, except the battery capacity must be at least 2.5 kilowatt hours instead of 4. The amount, however, can be claimed up to $2,500 instead of $7,500.

Does My Hybrid Qualify for the Hybrid or EV Tax Credit?

There are three major types of alternative fuel vehicles: hybrids, electric vehicles, and fuel cell vehicles. A hybrid is a vehicle that utilizes electric energy and traditional gasoline energy to power the vehicle. An electric vehicle relies entirely on electricity to run the vehicle. Fuel cell vehicles are given power by combining hydrogen and oxygen to produce electricity - these vehicles are the least common of alternative fuel vehicles.

See the tables below to see if your vehicle qualifies.

It is important to note that there are traditional hybrid vehicles which get their energy from both a gasoline engine and electric motor simultaneously while a plug-in hybrid will use the battery energy before resorting to gasoline in the tank. The plug-in hybrids are the only hybrids which qualify for the tax credit. The difference is that the plug-in hybrid relies primarily on electric energy which is why it qualifies for the credit.

How Long Do I Have to Claim the Hybrid Credit?

Note: The phaseout threshold applies only to vehicles purchased before 2023.

This credit may start to phase out once a company has sold 200,000 qualifying vehicles. Cadillac, General Motors, and Tesla were the only companies to reach this threshold for plug-in hybrids (GM) and plug-in electric vehicles (Tesla). Thus, these hybrid and electric vehicles purchased in 2022 and prior are not eligible for a tax credit. For vehicles purchased after 2023, the phaseout no longer applies. The phaseout period begins by allowing taxpayers to claim 50% of the credit if the purchasing of the vehicle took place in the first two quarters since the phaseout initiated. From there, 25% of the credit can be claimed for the second two quarters. See General Motors in the table below to see an example of these amounts.

For individual taxpayers, the hybrid or electric vehicle credit does not carry forward if you owe no tax in the year you claim it. The credit must be claimed for the year the vehicle is purchased and only applies to that year's tax liability.

This credit does carryover for businesses only; the EV tax credit does not carry forward for individuals and has to be used for the year the vehicle is purchased. For this, it has to be claimed in the year the vehicle was purchased and any unused portion will be eliminated if there is a tax liability. In other words, if the business claims the full $7,500 credit, but only owed $2,000 in tax, then the remaining $5,000 will not carry forward and will instead be eliminated. If, however, the business is owed a tax refund and has no tax liability, then the credit will be unused and will carry forward to the next year.

When you prepare and file your next tax return on eFile.com, you will answer simple questions that will allow eFile app to claim the credit, if applicable. The form generated will be Form 8936 - eFileIT.

Vehicles that Are Eligible for the Clean Vehicle Credit

These vehicles are confirmed to qualify for the newly enhanced Clean Vehicle Credit. These vehicles need to be placed into service or delivered on or after April 18, 2023.

Vehicles that are Eligible for the Credit Before 2023

The following plug-in hybrids, according to the IRS, are eligible for the Qualified Plug-In Electric Drive Motor Vehicle Tax Credit. General Motors and Tesla vehicles are generally not eligible for the tax credit. The amounts vary based on the power storage capability of the battery.

*Companies who have initiated phasing out indicate different, decrementing values based on the year purchased. Only General Motors and Tesla (electric vehicles only) finished this process. See a list of all qualifying electric vehicles.

Additionally, some states offer cash rebates as an incentive for its taxpayers to invest in a plug-in electric or hybrid vehicle. California, for example, offers up to $7,000 in the form of a rebate through the Clean Vehicle Rebate Project (CVRP) as the CA EV tax credit. This covers electric cars, hybrid electric cars, and fuel cell vehicles. 

If the vehicle in question was purchased as a business expense, it may be able to be claimed on Form 3800, General Business Credit- eFileIT. This credit carries forward for businesses if it is not used in the year it is purchased.

Hybrid vehicles sold roughly 800,000 units in 2021, a large increase from the prior year, and around 175,000 plug-in hybrid electric vehicles. In 2020, more than 65,000 plug-in hybrid vehicles and over 450,000 hybrid vehicles were sold, all according to the U.S. Bureau of Transportation and Department of Energy. The number of plug-in hybrids in 2020 was down from 2019, but hybrids and electric vehicles were up; from 2020 to 2021, the sale of hybrids, plug-in hybrids, and electric vehicles all about doubled.

Some of the most popular plug-in hybrid vehicles were from Toyota, such as the well-known Prius, Prius Plug-In, and RAV4 hybrid plug-in models. The hybrid Corolla and Camry models also sell exceptionally well, but these are not plug-in vehicles. Toyota offered two plug-in hybrids in 2021, the RAV$ and Prius, which together sold over 50,000 units.

Do you own or want to invest in any of these vehicles? Make sure you get the most out of your investment when you file your taxes. Claim the credit via Form 8936 and eFileIT on eFile.com. Start your return now - see how eFile.com compares to TurboTax^® or H&R Block^®.

Additional Energy-Efficient Resources

• See more tax credits for being eco-friendly around the home.
• Find deductions for improving your home.
• View plug-in electric vehicles that qualify for the credit.
• Prepare your tax return with eFile.com and be assured that any credits you qualify for will be found. The eFile app will guide you through claiming them and attaching all the forms to your Form 1040.

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