The federal tax credit for personal-use electric vehicles has been extended through 2032, but it’s limited to electric vehicles that comply with strict domestic sourcing rules for batteries.

When the IRS fully implements the federal rules, there may be relatively few electric vehicles that qualify for the full $7,500 federal tax credit. 

Here’s good news: the federal electric vehicle tax credit is not the only game in town.

Most states offer incentives of their own to residents who make the switch from gas guzzlers to electric vehicles. These incentives vary from state to state.

The incentives may include reduced vehicle licensing fees or sales taxes, the right to drive in state HOV lanes without any passengers, reduced or no vehicle inspections, and financial incentives for purchasing home chargers.

In many states, local electric utilities offer rebates to customers who purchase electric vehicles; these vary from as little as $100 to $1,500 or more.

In addition, eight states have really stepped up to the electrification plate by offering their own statewide financial incentives to residents who purchase or lease electric vehicles. In most states, the incentive takes the form of a rebate, not a tax credit.

A rebate is a lump sum paid to the electric vehicle purchaser or lessor. In many states, the rebate is obtained directly from the dealer at the point of purchase.

The state rebates are generally smaller than the maximum $7,500 federal tax credit, but are usually at least $1,000 to $2,000. In some states, however, they can be as much as $7,500 for lower-income residents.

Also, in some states, the rebates are available to businesses as well as individuals.

The state rebates are not subject to the draconian domestic sourcing restrictions that apply to the federal tax credit, so it may be much easier to find an electric vehicle that qualifies for a state rebate than for a federal tax credit. Also, the state rebates are available if you lease an electric vehicle for a minimum period (usually 30-36 months).

You must be a state resident to qualify for a rebate, and you must continue to reside in the state for two or three years (depending on the state) after you purchase or lease your electric vehicle. In addition, many states have income caps, some of which are lower than the federal caps.

Each state’s electric vehicle rebate program is different. So be sure to thoroughly check out your state’s program before you buy an electric vehicle.

Maryland

Beginning July 1, 2023, purchasers or lessors of zero-emission plug-in electric or fuel cell electric vehicles can qualify for a $3,000 Maryland excise tax credit. The tax credit is first-come, first-served, and is limited to one vehicle per individual and 10 vehicles per business.¹

To obtain the credit, vehicles must meet the following criteria:

• Have a total purchase price not exceeding $50,000.
• Be propelled to a significant extent by an electric motor that draws electricity from a battery with a capacity of at least 4 kilowatt-hours.
• Be unmodified from original manufacturer specifications.
• Be purchased and titled for the first time between July 1, 2023, and July 1, 2027.

A $1,000 credit is available for zero-emission motorcycles ($2,000 for three-wheeled motorcycles).

Pennsylvania

Pennsylvania has a rebate program for lower-income residents who purchase or lease battery electric vehicles, plug-in hybrid electric vehicles, or other alternative-fuel vehicles, including electric motorcycles.

Pennsylvania limits the rebate to its residents whose household income is less than 400 percent of the federal poverty level. This greatly limits the rebate’s availability.

For example, a family of two must have an income of no more than $73,240 to qualify for a rebate, while a single resident can have income of up to $54,360. There is no rebate for businesses.²

Pennsylvanians with income of less than 200 percent of the federal poverty level get an extra $1,000 rebate.

The rebate is available for new electric vehicles with a purchase price of $50,000 or less. Used electric vehicles that cost up to $50,000 and are up to seven years old with no more than 75,000 miles on the odometer also qualify for the rebate. Used electric vehicles must be purchased from a dealer.

This rebate is scheduled to expire June 30, 2023.

Takeaways

Eight states offer tax rebates or credits to residents who purchase or lease electric vehicles, two of which are Maryland and Pennsylvania.

You can collect state credits and rebates in addition to the federal tax credit. In many cases, the credits are available for electric vehicles that don’t qualify for the federal credit because of strict domestic sourcing rules for batteries.

Many of the eight states that offer rebates impose income restrictions to qualify for a rebate as well as price restrictions on qualifying electric vehicles.

You must be a state resident to qualify for a state electric vehicle rebate, and you must continue to reside in the state for two or three years (depending on the state) after you purchase or lease your electric vehicle.

¹Maryland Statutes, Transportation Code Sec. 13-81, Maryland Dept. of Transportation, Titling—Excise Tax Credit for Plug-in Electric Vehicles.

²Pennsylvania Department of Environmental Protection, Alternative Fuel Vehicle Rebates for Consumers.