$7500 Federal Credit, anyone actually got it?

[dendenyc]

Ive heard mixed messages about what the 7500 credit is. Some say it lowers your federal tax liability by $7500 but you don’t get a refund. Can anyone clarify? For arguments sake let’s say my federal tax liability is $0 will I get back $7500 tax refund from Uncle Sam?

If that’s not indeed the case then how is everyone increasing their tax liability to get the maximum? Should I raise my dependents to 10 on my W4’s?

 

[emorog]

if your liability is 0, then a credit of 7500 does nothing for you. The credit reduces your liability by (up to) 7500. Providing you have a liability of at least 7500, then the full credit can be claimed. (it cannot go negative.) You cannot increase your liability except by earning more/having other income. (e.g. sell some stock that would make you owe capital gains tax, then you have increased your liability.)

Increasing your deductions (dependents) on your W4 does nothing to your liability, just changes how much is withheld. You will still owe the same amount no matter what you have withheld or not. (excluding penalties for not having enough withheld.)

 

[Zeeliv]

It does indeed lower your tax liability up to the full amount. It will not allow you to get a refund for more than you owe.

Assuming you already withheld what you owe:
If you owe 0 before the credit, you will get nothing back.
If you owe 5000 before the credit, you will get 5000 back.
If you owe 9000 before the credit, you will get 7500 back.

 

[Snow Drift]

It’s based on your total federal tax liability over the entire year. It has nothing to do with having to send the IRS a check in April or getting a normal refund.

If you had $7,500 or more federal taxes due all year...or you are a 1099 worker and need to pay that...you will get a $7,500 credit.

So, if you are like most people with a W2 and your company took out all your taxes and you don’t need to send the IRS anything, you will get a check for $7,500 (unless your federal tax liability was less); plus any normal refund.

If you owe the IRS money and your federal tax liability was over $7,500 you will reduce your owed amount and get a check for any residual

 

[ItsNotAboutTheMoney]

Ive heard mixed messages about what the 7500 credit is. Some say it lowers your federal tax liability by $7500 but you don’t get a refund. Can anyone clarify? For arguments sake let’s say my federal tax liability is $0 will I get back $7500 tax refund from Uncle Sam?

If that’s not indeed the case then how is everyone increasing their tax liability to get the maximum? Should I raise my dependents to 10 on my W4’s?

It is a non-refundable tax credit: that means it reduces tax liability, and it cannot reduce tax liability below $0.
(Tax liability is the amount of tax you should have paid for the year. Not the amount you have paid, nor the balance owed when you file. Line 61 on the 1040.)
It must be claimed for the tax year in which you put the car into service. (For personal vehicles, business use may be different. IANACPA)
It can only be claimed by the first title-holder.
It cannot be claimed if the car was purchased for resale.
It can only be claimed if the vehicle will primarily be driven in the USA.

 

[ℬête Noire]

Ive heard mixed messages about what the 7500 credit is. Some say it lowers your federal tax liability by $7500 but you don’t get a refund. Can anyone clarify? For arguments sake let’s say my federal tax liability is $0 will I get back $7500 tax refund from Uncle Sam?

I've claimed it (on 2017 return). Yes, you need tax liability to claim it. To be clear that's NOT the same as normally needing to send a cheque in with your tax return. That's because it's the number you owe in Federal Income tax for the year before subtracting any amount that was withheld by your employee (or prepaid by yourself if you're self-employed). So messing with your W-4 form (I assume to try to reduce your withholding?) won't change anything relevant to whether you can utilize the $7500.

So the EV Tax Credit can trigger you getting a refund when you wouldn't have otherwise gotten one or, as was the case with me, cause the refund you were going to get anyway to be much as $7500 bigger.

To get an inkling of if you'll have enough you can take a look at your 2017 taxes. Did you have someone do your taxes and e-file, so should have an IRS 8879 Form that you signed? If you have that check line 47, that's the amount that the credit is going to come out of. If that amount is less than $7500 (EDIT: or you think you'll have a lot lower income in 2018) then it's time to talk to your accountant about rolling over retirement funds into a Roth to create more liability.

EDIT: If you have other non-refundable tax credits also applied in the same year that could also run you out of room. While you're looking at the 8879 form check line 55, that's where the total of the tax credits appear, including where the EV will get added into.

 

[Oldschool496]

Speaking to your accountant for your situation is the best medicine here. There are things such as unused loss carryforwards and the like. SO an unused credit may also be a thing you can carryforward. Knowing your tax situation or your accountant knows it.

 

[DR61]

Note to retired people with traditional IRA's, 401K, 403B etc. retirement accounts. You can withdraw from those to increase your tax liability for the year you buy an EV.

 

[ewoodrick]

Ive heard mixed messages about what the 7500 credit is. Some say it lowers your federal tax liability by $7500 but you don’t get a refund. Can anyone clarify? For arguments sake let’s say my federal tax liability is $0 will I get back $7500 tax refund from Uncle Sam?

If that’s not indeed the case then how is everyone increasing their tax liability to get the maximum? Should I raise my dependents to 10 on my W4’s?

Lots of people have gotten them, but they only exist when filing taxes.
If you want to increase your dependents, then IRS will take out less every month, so you slowly get the credit. If you leave taxes alone, then you will tend to get a 7500 refund check after filing.
If you don't owe any taxes, you don't get any credit. But hopefully, if you can buy a $50k car, you will owe some taxes.

Also, if you have state income taxes, the fed rebate may get taxed, so you get a check and have to write a check.

If you use TurboTax or equivalent, go back to last year and try adding a EV credit and see what happens. I don't think that anyone has software available for next year, with the new tax plan yet. And of course, the new tax plan will impact the effect of the rebate.

 

[deonb]

If that’s not indeed the case then how is everyone increasing their tax liability to get the maximum? Should I raise my dependents to 10 on my W4’s?

You can raise your dependents if you want the tax credit given to you across the remaining of the year instead of getting back a single $7500 check in April.

So basically at this point you can raise it until your monthly witholding drops by $1250 or so.

On the one hand it’s nice getting a $7500 check back, on the other hand it’s an interest free loan you’re giving to the IRS.

 

[dendenyc]

I've claimed it (on 2017 return).
To get an inkling of if you'll have enough you can take a look at your 2017 taxes. Did you have someone do your taxes and e-file, so should have an IRS 8879 Form that you signed? If you have that check line 47, that's the amount that the credit is going to come out of. If that amount is less than $7500 .

I like where you're going with this, but my 8879 only has 5 lines (short version?), which number would I be looking at there?

 

[ℬête Noire]

I like where you're going with this, but my 8879 only has 5 lines (short version?), which number would I be looking at there?

Oops, my bad. I was referring to the 1040 Form. Ummm, let me check....OK, it's line 2 on the 8879. That's actually line 47 subtracted by line 55 (all your tax credits for the year). However if you were self-employed, and a few other things, it can raise it up further in a way that you'd not be able to reduce with the EV tax credit.

 

[ℬête Noire]

Lots of people have gotten them, but they only exist when filing taxes.
If you want to increase your dependents, then IRS will take out less every month, so you slowly get the credit. If you leave taxes alone, then you will tend to get a 7500 refund check after filing.
If you don't owe any taxes, you don't get any credit. But hopefully, if you can buy a $50k car, you will owe some taxes.

Also, if you have state income taxes, the fed rebate may get taxed, so you get a check and have to write a check.

If you use TurboTax or equivalent, go back to last year and try adding a EV credit and see what happens. I don't think that anyone has software available for next year, with the new tax plan yet. And of course, the new tax plan will impact the effect of the rebate.

Doh. NOT form 8879, it's line 47 of the 1040 tax return. You can sort of ballpark from line 2 of the 8879 but that has potentially got some extra stuff in it that you can't use the EV tax credit on.

P.S. Ultimately you'll need to talk to your accountant to be certain of all this stuff. Because I'm not one and even if I was you're not paying me and I don't have all your details.

 

[Austindude]

Note to retired people with traditional IRA's, 401K, 403B etc. retirement accounts. You can withdraw from those to increase your tax liability for the year you buy an EV.

I had money in a retirement account that I eventually wanted to move into a Roth so with this tax credit this was a good year for me (but not necessarily for someone else) to do and thereby take advantage of the $7500 tax credit. As has been previously pointed out by others on this forum, issues with such a transaction could result in a less desirable tax bracket. Check with your accountant before you make such a move.

 

[jddssc121]

Ive heard mixed messages about what the 7500 credit is. Some say it lowers your federal tax liability by $7500 but you don’t get a refund. Can anyone clarify? For arguments sake let’s say my federal tax liability is $0 will I get back $7500 tax refund from Uncle Sam?

If that’s not indeed the case then how is everyone increasing their tax liability to get the maximum? Should I raise my dependents to 10 on my W4’s?

Your W4 has nothing to do with what you actually owe in tax liability at the end of the year. It's just a # used to calculate withholding for paychecks. Your specific tax liability at the end of the year is the same, regardless if you have 1 or 100 dependents on your W4.

Respectfully, you need someone to explain how taxes, income, credits, and liabilities work apart from a Tesla purchase. You should pay a CPA for an hour's worth of time, and get a crash course.

 

[SDKoala]

Respectfully, you need someone to explain how taxes, income, credits, and liabilities work apart from a Tesla purchase. You should pay a CPA for an hour's worth of time, and get a crash course.

Earlier in life, I always wished that this stuff would have been taught in high school or college. However, I don't know if it would have even helped because I never really "got it" until managing the money I worked to earn. Lack of basic understanding of personal finances in general is far too prevalent, regardless of income and tax bracket.

 

[PessimiStick]

issues with such a transaction could result in a less desirable tax bracket. Check with your accountant before you make such a move.

Just for clarity, this is effectively impossible. Federal income tax is marginal. i.e.: You only pay the increased rate on the amount over the next rate threshold. It's not like you make an extra $1000 and then get taxed in a higher bracket on all of your income.

Essentially, you should do almost anything you need to do to make sure you have $7,500 of tax liability in the year you're taking the credit, or you're just leaving money on the table.

 

[ℬête Noire]

Just for clarity, this is effectively impossible. Federal income tax is marginal. i.e.: You only pay the increased rate on the amount over the next rate threshold. It's not like you make an extra $1000 and then get taxed in a higher bracket on all of your income.

Essentially, you should do almost anything you need to do to make sure you have $7,500 of tax liability in the year you're taking the credit, or you're just leaving money on the table.

I don't know how it'll work out this year, with all the changes, but in past years there were cases where hitting certain income milestones trigger thresholds that matter for various programs, deductions, etc. It is a low likelihood that a given scenario where it matters comes up but it can happen.

 

[Ejl80]

The thread title just makes me think of "Me fail English? That's unpossible!"