Indeed, as the title here indicates, the first thing you need to know about the U.S. government’s 2016 hybrid car tax incentives is that they only cover plug-in hybrids—vehicles that combine a gas engine and an electrically driven powertrain in the same package. The more traditional types, like the unplugged Toyota Prius, were eligible for a variety of IRS incentives early on in their lifecycles, but those have been phased out as many automakers, like Toyota, exceeded the volume ceiling used to cap their original credits. With that in mind, the experts have shifted their focus—and the bulk of the federal tax incentives for improving auto efficiency—to reward pure all-electric driving.
The reason that the plug-in hybrids are still in the mix is that they supply exactly that: the ability to travel a non-negligible distance using electricity alone. It’s just that the plug-ins, as opposed to pure EVs, complement a noticeably shorter electric-travel capability with an onboard gas engine that extends overall driving range to hundreds of miles.
Electrical vehicles and plug-ins are even covered under the same single section of the IRS code, Section 30D that offers a credit for “Qualified Plug-in Electric Drive Motor Vehicles.” As for the actual qualifications, they start with the requirement that a vehicle “draws propulsion energy from a battery with at least 5 kilowatt hours of capacity.” It’s that relatively low floor that allows plug-in hybrids to meet the IRS criteria, and it’s also worth noting that the credit maximum kicks in at about 17 kWh. Thus, the Chevrolet Volt, with an 18.4 kWh battery pack and 53-mile EV driving range, earns the same $7,500 in federal tax credits as a Tesla Model S, boasting an 85-kWh battery setup and a 270-mile range.