EV tax credit refund

[Mdkcrf250r]

Hey guys, I’m about to buy a ford escape phev tomorrow but I’m confused around the ev tax credit. I make a yearly salary and have always gotten a tax refund. From what I understand you cannot receive the ev credit via a tax refund but only a reduction in tax liability. So my questions are A: is that actually the case? B: how do I reduce my filing status to the point where I would owe around $7k in taxes?

 

[bwilson4web]

Hey guys, I’m about to buy a ford escape phev tomorrow but I’m confused around the ev tax credit. I make a yearly salary and have always gotten a tax refund. From what I understand you cannot receive the ev credit via a tax refund but only a reduction in tax liability. So my questions are A: is that actually the case? B: how do I reduce my filing status to the point where I would owe around $7k in taxes?

You have about a year to figure it out as the non-refundable, tax credit comes when you pay taxes next year. Options:

• reduce withholdings - so you get money this year paychecks for the tax credit next year
• (not sure) perhaps early withdraw of 401 k money ??

Perhaps Mr Google might offer some suggestions?

There once was a tax credit to adding an EVSE too.

Bob Wilson

 

[marshall]

You are correct in that you need to increase your tax liability to use up all of the tax credit. The tax credit is not a refundable tax credit.

The only way to increase your tax liability is to make more money (second job or overtime), pay the taxes on any tax deferred money like a traditional IRA or traditional 401k, or if you are contributing to a traditional 401k or equivalent, change it to a Roth 401k or equivalent and that will increase you tax liability.

Changing your filing status isn't going to help you increase your tax liability.

Some folks have been able to get the leasing company to apply the tax credit to their lease payments and then you have the option of buying the car at the end of the lease. In today's car market that may not be available, but you can always look into it.

 

[Bruce M.]

When I leased my car 2 yrs ago it was just assumed that the tax credit would be added to the downpayment, hence reducing the lease payments -- and Kona EVs were in relatively short supply in my region at the time. They should still do that -- though on some of the hotter new models (probably not applicable in your case) they'll find ways to gouge you.

 

[ayryq]

refund

I think (hope) that you've got this wrong. I'm not an accountant; someone tell me if I figure this incorrectly.
I believe the refundability of this incentive has nothing to do with your refund or withholdings through the year. It only matters that you've paid at least $7500 tax.
Here's an example using made-up numbers:
You make $100k in 2022. Your employer takes out (withholds), say, $15k for federal taxes on your paychecks.

But you make some charitable donations, have a kid, paid student loan interest, etc. and reduced your tax liability. When you figure your taxes next spring, you find that you only owed $10k in taxes for the year. Therefore you'll be getting a $5k refund!

However, you still paid 10k in taxes even though you got a refund. So the $7500 EV credit is something you can get. You'll get a $12500 check from the IRS.

If you had a job that doesn't withhold taxes (perhaps you're an independent contractor), you do your taxes the same, find out that you owe $10k and have to mail them a check. Now the EV cuts that down to $2500.

If you had no job and didn't make enough money to owe taxes, or you made so many donations that you reduced your taxes-owed (AKA "Liability") below $7500, that's the situation when you cannot take the EV credit.

Liability just refers to the taxes you owe on your income, based on your tax bracket and any deductions you can claim---not the balance owed or due at the end of the year. That's just a correction on imprecise withholding.

Edit to answer your first stated question: No I don't think that's actually the case.

 

[marshall]

It only matters that you've paid at least $7500 tax.

I think you mean, it only matters what you owe.

If one files using the long form, they can go to line 25 on the 2021 1040 tax form. You can see what you owe for that year. If it's more then $7,500, one can use up all of the tax credit. Other versions of tax form 1040 will show you what you owe for that tax year.

If the number of dependents and income are roughly the same, that should give one a good idea for 2022.

 

[ayryq]

it only matters what you owe.

Precisely; I was trying to avoid using this term, though, as people tend to think of "owing" as what you need to write your check for the following April. The point I was trying to make is that the balance "owed" or refunded when taxes are filed has nothing to do with the EV rebate.

In fact, I suppose you could alter your W4 (which controls your workplace withholdings) the year you intend to buy an EV, and have larger paychecks all year, instead of a large refund the following year. Some would even say this would be preferable, as any refund you collect amounts to an interest-free loan from you to the government.

In any case, the notion that you must "owe" a balance to the IRS when you file taxes in order to claim the EV credit is wrong. All that would mean is that you under-withheld taxes through the prior year.

(And again the disclaimer that I am not a tax pro or accountant.)

 

[Rajiv Vaidyanathan]

I believe the refundability of this incentive has nothing to do with your refund or withholdings through the year. It only matters that you've paid at least $7500 tax.

This is absolutely correct. If you had a tax liability of $7500 or more, you will benefit from the full tax credit. Whether you get a refund or not is irrelevant. If you are eligible for a refund, you will get a larger refund with the credit.

You only lose out on the credit if your total tax liability (amount you paid or need to pay in taxes over the year) is less than $7500.