PEV Incentives: What You Need to Know

(Updated 2/10/21 to include information about restored federal tax credit for fuel cell vehicles)

Present PEV incentives include tax credits, cash rebates and perks such as car-pool lane access, reduced registration fees, even free parking and sales tax forgiveness in some states.

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Federal tax credits for plug-in electric vehicles run from around $3,000 for plug-in hybrids (PHEVs) with small batteries up to $7,500 for most all-electric cars (EVs) and some PHEVs.

A previously expired federal credit for fuel cell electric vehicles was reinstated in last year’s Covid relief bill and has been extended until January 2022. It provides a tax credit of up to $8,000 for buyers of fuel cell vehicles.

Remember – a tax credit is not a cash rebate: For the EV credit, for instance, you’ll need a $7,500 federal income tax obligation in the year in which you buy the car in order to get the full amount.

If your tax bill is less than the credit available for the car you’re buying, you only get enough of the credit to zero out your income tax for the year; the government won’t send you a check for the difference and you can’t carry it over to the next year.

If you lease, the federal tax credit goes to the leasing company that owns the car (often the manufacturer’s in-house finance arm). It usually is applied to reduce lease payments, but there’s no requirement that the lessor/owner pass it along.

Under present law, the federal tax credit eligibility for each automaker begins phasing out three months after a manufacturer sells 200,000 qualified vehicles. The phase-out cuts the maximum credit on a manufacturer’s plug-in-vehicles by 50 percent for two quarters, then halves that figure for two additional quarters.

Qualified vehicles from an automaker hitting the 200,000 sales mark on Dec. 31, for instance, would keep the full tax credit – let’s say it is $7,500 – until March 31. It then would be cut to $3,750 until Sept. 30, when it would be cut again to $1,875 until March 31 of the following year. It would then  disappear.

Thanks to their relative successes with plug-in vehicle sales, both General Motors and Tesla have lost their federal tax credit eligibility.

The federal Energy Department maintains a clean vehicles tax credit eligibility list.

Congress, of course, can change the rules whenever it chooses.

Other Incentives

State and local PEV incentives vary widely, ranging from things as simple as free parking or reduced electricity rates to cash rebates and tax credits.

A particularly valuable incentive in crowded urban areas is solo occupancy access to a state’s car-pool lanes – but not all states with HOV lanes offer this perk. In fact, not all states and cities offer incentives. And those that are out there change often.

Right now, New Jersey has the largest PEV incentive, a rebate of $25 per mile of all-electric range up to a total of $5,000. That’s $1,000 for the plug-in hybrid with 40 miles of all-electric range, for instance, and $5,000 for electric vehicles with 200 miles of range or more.

Colorado is next with a state tax credit of up to $4,000. Delaware provides a rebate of up to $3,500, followed by Maryland, $3,000, Massachusetts and Oregon at $2,500, and California, Connecticut and New York at $2,000.  Various other states offer lesser amounts.

Oregon, Massachusetts, Connecticut and New York also also provide up to $1,500 rebates for PHEVs. Californian, once the leader in rebate amounts, has cut its awards to spread the available money around. Its PHEV rebate is now just $1,000.

Connecticut also offers a $5,000 incentives for fuel-cell electric vehicles, California provides a $4,500 fuel-cell rebate.

California also has special low-income buyer rules than can add up to $2,500 to its rebates.

One of the best sources for state and local PEV incentives is a listing available on the National Council of State Legislatures’ website. Plug In America’s incentives map also keeps track of state and federal inducements.

Going in armed with incentive info will help you determine how much car you can afford.

And you won’t be frustrated by a salesperson who doesn’t know.