The most noteworthy tax incentive available to EV consumers is the federal tax credit. It’s been around for more than a decade and is worth up to $7,500. Before you go subtracting that total off the price tag of prospective cars, however, keep in mind there are several important factors that determine how much, if any, of that $7,500 you’ll receive.

• Although manufacturers might advertise the federal tax credit as a discount, it is not. You will have to pay the car’s full price at the time of purchase.
• The federal tax credit only applies to new car purchases. If you are leasing an electric vehicle, the credit can be claimed by the car company. The silver lining is that manufacturers may pass some of those savings on in the form of lower monthly payments.
• How much of a tax credit an electric vehicle is eligible for is based on the capacity of the battery used to power the car. Therefore, the amount varies between vehicle type and model. With larger batteries, all-electric vehicles are eligible for the full $7,500. Most plug-in hybrid vehicles are not. A full list of the credit amount available to hybrid makes and models can be found on the U.S. Department of Energy’s website.
• There’s a good chance you may not receive the full federal tax credit amount your electric vehicle is eligible for. The credit is non-refundable, meaning the government will not be writing you a check if you purchase an electric vehicle. Instead, the credit is applied to your tax liability and, at best, it can reduce your tax bill to zero. For example, if you are eligible for a $7,500 credit and you owe $5,000 in taxes, you will only receive a $5,000 credit. The remaining portion goes unused and cannot be applied to next year’s taxes.