Browse
Log in / Register
Share
December 10, 2025
Starting January 1, 2028, U.S. fleet operators and company car drivers of plug-in hybrid vehicles (PHEVs) will face a significant tax hike. The Internal Revenue Service (IRS) has announced a new valuation method for the personal use of employer-provided PHEVs, raising the effective tax rate from as low as 4% today to a minimum of 18%. At the same time, several states are introducing a per-mile fee for electric vehicles and PHEVs (known as eVED), adding another layer of cost.
The change stems from the IRS’s updated “fringe benefit” rules, which now require PHEVs to be valued based on real-world fuel economy rather than the previous test-cycle estimates. This adjustment, effective for vehicles placed in service after 2027, mirrors the shift seen in the UK’s benefit-in-kind system. The result: many PHEVs that previously qualified for low tax rates due to low official CO₂ figures will now be taxed at a much higher rate.
“This is a wake-up call for fleets that have been relying on PHEVs as a bridge to full electrification,” said Robert Chen, director of fleet consulting at Element Fleet Management. “The tax advantage is shrinking, and fleets need to rethink their vehicle acquisition strategies.”
In November 2025, the IRS had introduced a temporary easement for PHEVs registered before 2028, treating them as if they emitted 1g/km for tax purposes. This measure, similar to the UK’s Euro 6e-bis easement, prevented an immediate spike in tax bills. However, the easement expires on January 1, 2028, and does not apply to vehicles registered after that date.
Without the easement, a typical PHEV with a combined fuel economy rating of 60 MPGe and an all-electric range of 40 miles would see its taxable value jump from roughly 4% of MSRP to 18% in 2028. For a $50,000 vehicle, that means an additional $7,000 in taxable income for the driver per year, assuming the highest marginal tax rate.
“The challenge is what comes next,” said Maria Gonzalez, vice president of fleet operations at LeasePlan USA. “With BIK equivalent rates for PHEVs rising from 4% to 18% in just two years, fleets need to carefully manage timing and cost, while also avoiding being locked into a technology that may soon become less favorable.”
Fleet operators are taking a variety of actions in response to the future tax changes, according to the National Association of Fleet Administrators (NAFA).
A number of fleets are removing PHEVs from their choice lists altogether or making them “order by exception.” At the same time, demand from some employees for these vehicles remains high, especially among those who, for various reasons, don’t yet want to opt for a full EV.
“We’re hearing reports of fleet managers not just ensuring drivers still opting for PHEVs are verbally aware their tax
