Last week, the Internal Revenue Service (IRS) and Treasury Department made a change to the federal tax credit for electric vehicles (EVs) that changes the list of eligible vehicles for 2023. This is the second big update to the federal tax credit this year, following the January decision to postpone the implementation of the complicated battery and mineral requirements in the Inflation Reduction Act (IRA).
What did the Treasury change?
The IRA added a vehicle price cap for the federal tax credit for EVs that went into effect on January 1, 2023. To qualify for the credit, electric SUVs, pickup trucks, and vans must have a manufacturer-suggested retail price (MSRP) under $80,000 and electric sedans and other vehicles must have an MSRP under $55,000.
At the end of December, the Treasury issued a list showing which MSRP limit applied to which vehicles – and that list confused a LOT of people. The Treasury had chosen to use the standard of the CAFE rules (corporate average fuel economy standard), instead of the EPA Fuel Economy Labeling standard, which informs what the window sticker says. As a result, some vehicles that are sold as SUVs were determined to qualify for the $55,000 price cap (instead of $80,000), and some vehicle models were split based on trim. For example, up until this most recent announcement, the all-wheel drive versions of the Volkswagen ID.4 qualified for the $80,000 price cap while the non-all-wheel-drive versions had a $55,000 price cap.
At some point between late December and early February, it must have become clear to the Treasury that this classification confusion would harm the effectiveness of the incentive program, so it decided to reissue vehicle MSRP limits based on the EPA Fuel Economy Labeling standard.
What vehicles does this change impact?
The following EV models are now classified as vehicles that qualify for the federal tax credit only if their MSRP is under $80,000:
- Audi Q5 Plug-In Hybrid
- Cadillac Lyric
- Ford Mustang Mach-E
- Ford Escape Plug-in Hybrid
- Lincoln Corsair Plug-in Hybrid
- Tesla Model Y – all trims!
- Volkswagen ID.4 - all trims!
These price limits are retroactive to January 1, and you can see the full list of price caps here on the Treasury’s website.
VW ID.4 in Quincy MA, with a Chevy Bolt in the background
So what vehicles qualify for what?
We continue to be in a weird time, where most of the changes of the IRA have been implemented (final assembly location requirement, income caps, and price caps, more info here) but some are still pending (mineral and battery components). We don’t expect any further changes from the IRS or Treasury until March (when we expect guidance on the mineral and battery pieces). Until then, you can use our Drive Green shopping portal to find out which vehicles qualify for what federal tax credit – and also what state rebates.