You may have seen headlines back in March of 2019 about the Presidential Administration proposing a repeal of the Federal Electric Tax Credit in its 2020 budget. While that possibility did loom for most of the year, the tax credit was kept alive in the eleventh hour due to stiff opposition from Congress. You may also have heard of a bipartisan bill from April of 2019 dubbed the “Driving America Forward Act”, which sought to grant each automaker an additional 400,000 vehicles to the current 200,000 limit. That particular expansion of the credit was indeed eliminated from the 2020 spending package, although the bill still exists in limbo. So, all in all, the tax credit remains in the same state that it was before any of those headlines popped up.

Let’s review how the credit works. The Qualified Plug-In Electric Drive Motor Vehicles tax credit (IRC 30D), otherwise known as the Federal Electric Vehicle Tax Credit, was introduced in 2008. It offers a tax credit of up to $7,500 for passenger vehicles and light trucks acquired after 2009, for the first 200,000 vehicles’ that each manufacturer sells in the United States. Breaking down that phrase:

A Tax Credit: 

This is not an instant discount off the MSRP of the vehicle. You do not drive away from the dealership having deducted $7,500 off your receipt — that happens in your tax forms the following year. It's only worth $7,500 to someone whose tax bill at the end of the year is $7,500 or more. If you only owe $5,000 in income tax for a particular year, then that's all the tax credit will be. Uncle Sam's not writing a refund check for the other $2,500.

of Up To $7,500: 

Not every car qualifies for that maximum tax credit. It can change based on the electric car’s battery size. The credit is equal to a starting amount of $2,500 (for a vehicle with a battery capacity of at least 5-kilowatt hours), plus an additional $417 for each kilowatt-hour (kWh) of battery capacity in excess of 5 kWh. Not to exceed $7,500.

For the First 200,000 per Manufacturer: 

Once 200,000 cars from a certain manufacturer (not an individual model of car) have been sold, the tax credit does not instantly stop. The credit begins to phase out in the second quarter after the quarter in which the manufacturer reaches the limit. For the first two-quarters of the phase-out period, the credit is 50% of the full credit amount. For the second two-quarters of the phase-out period, the credit is 25% of the full credit amount. The credit is fully phased out in the sixth quarter after the manufacturer reaches the limit.