Recent changes to the tax credit have excluded many electric, hybrid and plug-in hybrid vehicles from qualifying for tax savings under the new structure.
Under the amended regulations, many Volkswagen models will still be eligible for the tax credit, but a single restriction could wreak havoc on the electric vehicle industry. Owners of a compact electric SUV can benefit from the vehicle if it is assembled at a factory in Tennessee.
A structure that stems from the Reducing Inflation Act of 2022, which the Biden administration is implementing to address health care, climate change, taxes and other economic issues.
According to, “Because of new rules about where new electric vehicles must be built and where their batteries are available, the number of new electric vehicles eligible for a tax credit has shrunk from previous years.” Many vehicles that qualified in 2022 may not qualify for the tax credit in 2023. From March 2023, restrictions surrounding the source of batteries and other components will be enacted, making electric cars such as the Volkswagen ID 4 ineligible.
Key provisions of the updated rules include a vehicle cap of 200,000 on the number of Tesla, Toyota and GM hybrids and electric vehicles that can benefit from the tax exemption. High-end electric cars such as the Tesla Model S, Lucid Air, and GMC Hummer will only qualify if the car is leased and not purchased. The new structure also includes an income cap of $150,000 for married couples or $300,000 for married couples filing a joint tax return.
The most drastic change is the government’s decision to scrap the car, which ranges from $3,751 to $7,500 if the car isn’t assembled at a North American plant. Other electric vehicles affected by this review include the Toyota bZ4X, Subaru Solterra, Kia EV6, BMW i4, and Hyundai Ioniq 5.
Only Volkswagen ID.4 models are eligible for the electric vehicle tax credit
According to the guidelines, the vehicle must have “has undergone final assembly in North America” and not exceed $80,000 for SUVs, vans and vans and $55,000 for other vehicles.
While models adhere to these rules, only models made in a Tennessee, US factory are eligible, with any model shipped from abroad ineligible for the electric vehicle tax credit.
Eligible 2023 SUV models include the Pro, Pro S, S, AWD Pro and AWD Pro S, but only if they are assembled at the Chattanooga plant. Front-wheel drive versions must have an MSRP of $55,000 or less, and all-wheel drive versions must be listed under $80,000 to qualify.
How to determine if your Volkswagen ID 4 qualifies for the tax credit
It’s not the only automaker affected by the updated tax credit structure. Now referred to as the “Clean Vehicle Credit,” eligibility for “North American Final Assembly” applies to plants in the United States, Canada, Puerto Rico, and Mexico.
If Volkswagen and other European and Asian countries decided to move production to any of these regions for cars sold in the United States, that could affect the tax credit incentive. But, until that happens, the electric vehicle will only be eligible if it’s assembled in North America.
Since some automakers use different build locations, check the VIN for the final assembly point to see if your EV qualifies under the new guidelines.
