November 6, 2018
The Plug-In Electric Vehicle Tax Credit
Buyers of qualifying plug-in electric vehicles (EVs) may be
The plug-in EV credit phases out once a vehicle
able to claim a federal income tax credit of up to $7,500.
manufacturer has sold 200,000 qualifying vehicles for use
The tax credit phases out once a vehicle manufacturer has
in the United States. The credit begins to phase out in the
sold 200,000 qualifying vehicles. Tesla has reached this
second quarter after the quarter in which the manufacturer
threshold and credits for Tesla vehicles are to begin phasing
reaches the limit. For the first two quarters of the phase-out
out in 2019. General Motors (GM) is expected to cross the
period, the credit is 50% of the full credit amount. For the
phase-out threshold before the end of 2018.
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 115th Congress, legislation has been introduced that
in the sixth quarter after the manufacturer reaches the limit.
would expand tax credits for EVs. Legislation has also been
introduced to repeal the provision. This In Focus provides
Legislative Background
an overview of the plug-in EV tax credit and briefly
The credit for plug-in EVs was established by the Energy
discusses relevant economic policy considerations.
Improvement and Extension Act of 2008, enacted as
Division B of P.L. 110-343. As first enacted, the credit was
Tax Credit for Plug-In Electric Vehicles
to phase out once 250,000 credit-eligible vehicles were
The primary federal tax incentive for plug-in electric
sold. The plug-in EV phase-out threshold was changed
vehicles is the Internal Revenue Code (IRC) Section 30D
from a 250,000 vehicle limit to a 200,000 vehicle per
credit. The credit ranges from $2,500 to $7,500 per vehicle,
manufacturer limit in the American Recovery and
depending on the vehicle’s battery capacity (and subject to
Reinvestment Act of 2009 (P.L. 111-5).
the per manufacturer limit).
When Congress passed legislation introducing tax credits
For individuals, the credit can only be used to offset a
for plug-in EVs, these vehicles were believed to be the
taxpayer’s tax liability in the current tax year (i.e., there is
“next generation” of alternative-fuel vehicles. Providing
no carryback or carry forward). The credit is nonrefundable,
incentives for these vehicles was consistent with the
meaning the amount of the credit cannot exceed a
broader goal of transforming the transportation system to be
taxpayer’s tax liability.
cleaner, more fuel efficient, and less reliant on petroleum. It
was believed that tax credits for consumers would
For businesses, the tax credit attributable to depreciable
encourage acceptance of this emerging technology by
property used for business or investment purposes is treated
making it more price competitive with conventional
as part of the general business credit. The general business
vehicles. With more consumers wanting plug-in EVs, more
credit can be carried back one year or carried forward for
manufacturers would make these vehicles commercially
up to 20 years.
available, and plug-in EVs would become fully integrated
in the vehicles market.
Credits are generally claimed by the taxpayer purchasing
the vehicle for use. If the vehicle is purchased or leased by
The EV credits followed credits for other alternative
a tax-exempt organization, the seller of the vehicle may be
technology vehicles that had been enacted in the Energy
able to claim the credit so long as the seller discloses the
Policy Act of 2005 (P.L. 109-58). This legislation had
credit amount to the purchaser.
included tax credits for hybrid vehicles, along with other
types of alternative fuel vehicles. Credits for hybrid
automobiles were not available after December 31, 2010.
Additionally, phaseout of hybrid vehicle tax credits was
triggered once manufacturer sales reached 60,000 vehicles.
Toyota reached this threshold in the second quarter of 2006.
Honda reached the threshold in the third quarter of 2007.
Economic Considerations
To evaluate the effectiveness of the credit for plug-in
electric vehicles, policymakers may consider (1) if the
credit has been successful in increasing the number of EVs
in use; (2) who benefits from the credit; and (3) the cost of
the credit relative to the credit’s benefits.


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The Plug-In Electric Vehicle Tax Credit
Does the Tax Credit Lead to More EVs?
How Much Does the Tax Credit Cost?
Some empirical evidence suggests that federal tax credits
The JCT estimates that under current law tax expenditures,
are among the factors associated with higher plug-in EV
or forgone revenue, for the plug-in EV tax credit will be
sales. Other factors that have been found to be associated
$7.5 billion between FY2018 and FY2022 (Figure 1). From
with higher plug-in EV sales include access to charging
FY2011 through FY2017, tax expenditures for the credit
infrastructure and high-occupancy vehicle (HOV) lane
totaled $2.2 billion. Eliminating the per-manufacturer cap
exemptions.
or otherwise expanding the credit would increase the tax
expenditure estimate. Repealing the credit would reduce the
The effectiveness of a tax credit depends on how many
tax expenditure.
taxpayers buy a plug-in EV because of the tax credit.
Purchases that are motivated for other reasons, such as
Legislation in the 115th Congress
HOV-lane access or general desire for a high-end vehicle
In the 115th Congress, there have been proposals to extend,
that happens to be electric, might still qualify for federal tax
as well as proposals to repeal, the plug-in EV tax credit.
credits. For taxpayers who purchase for other reasons, tax
The Electric CARS Act of 2018 (S. 3449) would extend the
credits are a windfall gain. They reduce federal revenue but
credit through December 31, 2028, repealing the per-
do not increase plug-in EV sales.
manufacturer cap. The bill also proposes allowing the tax
credit to be carried forward, or assigned by the taxpayer to
Who Claims the Tax Credit?
the person who financed the purchase. This legislation also
According to Joint Committee on Taxation (JCT) estimates,
proposes extending the tax credits for alternative fuel
between FY2018 and FY2022, about half of the forgone
infrastructure. Similar legislation has been introduced in the
revenue associated with the plug-in EV tax credit will be
House (H.R. 6274), albeit without the carry forward for
for corporations claiming the credit (Figure 1). This could
individuals claiming the credit.
be businesses purchasing EVs. This also could be instances
where sellers are claiming the credit for vehicles sold or
Extending the credit for 10 years would benefit domestic
leased to tax-exempt entities.
manufacturers whose tax credits have either begun or will
soon start to phase out. The legislation has also been
Figure 1. Tax Expenditures for Plug-In EV Tax
supported by some electric utilities, who view EVs as a way
Credits, FY2011–FY2022
to address slow growth in electricity demand. The Senate
bill (S. 3449) would address limits on individuals’ ability to
claim the credit by allowing a carry forward, while both
proposals would allow the credit to be assigned to entities
financing purchases. A long-term extension of the plug-in
EV tax credit would increase the tax expenditure associated
with this provision.
Others have proposed eliminating the per-manufacturer
limit, having the tax credit phase out after a certain date
instead. H.R. 7065/S. 3582 would repeal the per-
manufacturer limit, instead phasing out the credit in 2022.
Removing the per manufacturer cap would likely benefit
manufacturers of plug-in electric vehicles that would

otherwise have tax credits for their vehicles phase out in the
Source: Joint Committee on Taxation (JCT).
near term. However, with no credits available after 2022,
Notes: * JCT estimated tax expenditures of less than $50 mil ion for
the provision would not provide a longer-term incentive to
individuals in 2011 and 2012 and for corporations in 2014 and 2015.
enter the plug-in electric vehicle market for manufacturers
Al tax expenditure figures are projections, and do not reflect the
with a small or nonexistent presence. The increased cost of
actual amount of tax credits claimed.
tax credits in the near term would, to some degree, be offset
by savings from not providing credits in the longer term.
In 2016, 57,066 individual taxpayers claimed $375 million
The Fairness for Every Driver Act (S. 3559) would repeal
in plug-in EV tax credits. EV tax credits are
the plug-in EV credit. Additionally, this bill proposes
disproportionately claimed by higher-income taxpayers.
Most of the tax credits (78%) are claimed by filers with
imposing an annual fee on alternative fuel vehicles that
would contribute to the Highway Trust Fund (HTF). This
adjusted gross income (AGI) of $100,000 or more, and
fee might be viewed as a user fee for highway use, and
those filers receive an even higher proportion (83%) of the
amount of credits claimed. About 7% of credits claimed,
could help shore up the HTF. Imposing a fee on plug-in
EVs, however, would increase the cost of owning these
and 8% of the total amount of credits, were on returns
where the taxpayer’s AGI exceeded $1 million. Acr
vehicles, potentially reducing the number of consumers
oss all
taxpayers, about 17% of returns filed have an AGI of
willing to substitute a plug-in EV for a petroleum fueled
vehicle.
$100,000 or more. About 0.3% have an AGI of $1 million
or more.
The House-passed version of the Tax Cuts and Jobs Act
(H.R. 1) included a repeal of the plug-in EV tax credit. The
Senate’s version of the bill did not include a repeal, and the
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The Plug-In Electric Vehicle Tax Credit
provision was not changed in the 2017 tax revision (P.L.
Molly F. Sherlock, Specialist in Public Finance
115-97).
IF11017


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