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You're only reading half of the story. I suggest you re-read this passage:
The IRS tax table states that the “Married Filing Jointly” tax on $39,850 is $5,124. Thus, the Sixpacks qualify for a $5,124 tax credit on their new Volt--not $7,500. The good news is that this is real money. If the amount of federal income tax the Sixpacks owed on April 15 was otherwise $0, the IRS would send them a refund check of $5,124. If they otherwise owed $1,000, they’d get a check for $4,124. If they otherwise were due a $1,000 refund, they’d get $6,124.
Bottom line: in my simple example above. I would get a refund check for $7500.
Note: Mods, this is extended conversation from private messages also. I continued to post here so others can chime in, because todd refuses to believe me on this. So, it might be best to merge into the Tax thread I linked above.
Since my name was mentioned up-thread, I'll chime in. Jomo's example is spot on and completely correct (assuming it relates to federal taxes).
NuclearPowered
Member
The only thing withholding less then normal would do is allow one to capture the value of the credit in the tax year instead of waiting till refunds to get it back.
The credit reduces your liability 1:1 at tax time.
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The credit reduces your liability 1:1 at tax time.
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The IRS will send a refund check if you paid too much withholding or estimated tax. What they won't do is send you a check that effectively lowers your total tax for the year below zero. You might want to lower your withholding to eliminate the hassle of paying withholding and then getting a refund. But eligibility for the tax credit is based on your total tax liability, and has nothing to do with the amount of your withholding or estimated tax payments.
Examples:
Say your total tax had you not bought the car would have been $6,000 and your withholding was $7,000. You don't buy the car so you get a refund of $1,000. But if you did buy the car, you'd get a refund of the entire amount of your withholding, which is $7,000. You would not get $7,500 because that would have reduced your total tax below zero.
Now, say that your total tax if you had not bought the car is $6,000 but you paid no withholding. You would owe $6,000. But if you did buy the car you would owe no tax, and would get no refund, because a refund would reduce your total tax below zero.
In both the above cases, if you did buy the car, your actual tax is zero because the $7,500 tax credit is more than what your tax would have been had you not bought it.
Now say that your total tax, without buying the car, is $10,000 and your withholding is $11,000. The IRS sends you a refund of $1,000. But if you do buy the car, the IRS sends you $8,500 which means that you actually pay $2,500 in tax, or $7,500 less than if you had not bought the car.
If your total tax without buying the car is $10,000 and you had no withholding, you owe the IRS $10,000 if you don't buy the car, but you only owe them $2,500 if you do buy the car.
In both the above cases, you pay the same amount of tax in the end.
When the tax law says that the tax credit is not refundable, it does not mean that the IRS will send no check. It means that the credit cannot reduce your total tax below zero. You also cannot carry it over to the next year.
Examples:
Say your total tax had you not bought the car would have been $6,000 and your withholding was $7,000. You don't buy the car so you get a refund of $1,000. But if you did buy the car, you'd get a refund of the entire amount of your withholding, which is $7,000. You would not get $7,500 because that would have reduced your total tax below zero.
Now, say that your total tax if you had not bought the car is $6,000 but you paid no withholding. You would owe $6,000. But if you did buy the car you would owe no tax, and would get no refund, because a refund would reduce your total tax below zero.
In both the above cases, if you did buy the car, your actual tax is zero because the $7,500 tax credit is more than what your tax would have been had you not bought it.
Now say that your total tax, without buying the car, is $10,000 and your withholding is $11,000. The IRS sends you a refund of $1,000. But if you do buy the car, the IRS sends you $8,500 which means that you actually pay $2,500 in tax, or $7,500 less than if you had not bought the car.
If your total tax without buying the car is $10,000 and you had no withholding, you owe the IRS $10,000 if you don't buy the car, but you only owe them $2,500 if you do buy the car.
In both the above cases, you pay the same amount of tax in the end.
When the tax law says that the tax credit is not refundable, it does not mean that the IRS will send no check. It means that the credit cannot reduce your total tax below zero. You also cannot carry it over to the next year.
The issue was that Todd was misunderstanding (as many people do) that the TOTAL TAX LIABILITY is TOTAL TAX BILL as calculated on your 1040. It isn't the difference that you happen to owe or be owed between your total tax liability as calculated on the 1040 and the amount you had for withholding as a result of your W2 entries.
His original post above would indicate he believes that he could affect his eligibility for the of the credit by changing his W2 dependents/withholding.
In reality, this has no effect. It can only as mentioned above impact your "cash flow" by "getting the money early" in installments via less withholding per pay check.
And if your withholding during the year is more than the total tax liability with the credit, yes, you will get a refund check.
Many people misunderstand this. I kept at it with him to help dispel the myth.
His original post above would indicate he believes that he could affect his eligibility for the of the credit by changing his W2 dependents/withholding.
In reality, this has no effect. It can only as mentioned above impact your "cash flow" by "getting the money early" in installments via less withholding per pay check.
And if your withholding during the year is more than the total tax liability with the credit, yes, you will get a refund check.
Many people misunderstand this. I kept at it with him to help dispel the myth.
Todd, that leaves a pretty narrow catagory of people that would be able to participate in the EV program at all. >50% don't make enough to qualify fully, and 2X national average would take away another 25%!
NigelM
Recovering Member
Maybe the title of this thread should be changed? It started off being about options but seems like it turned into a tax debate about 30 posts back.
Indeed. The 25% of people who are making more than twice the national average could easier afford to buy an EV from Tesla, without the tax credit. It would have been nice to see it scalable to give more money back to individuals who made less money but wanted an EV, while the ones who made more money received less. So, if you make 125k with no dependents or something, you get no credit, if you make 60k, you get 15k rebate.
It just seems like congress could have done the tax a little different to try and help everyone out and sell more EV's. And off my soap box I go.
it really should just be split. The original topic of the thread covers some good things to consider, if you're patient enough to wait. The tax credit related discussion would be a good topic by itself.
I fearfully tread into this off-topic, but it might be worth stating...
Assumptions:
(1) What's being suggested is that the tax credit either -a- not apply for incomes above some amount or -b- that it be scaled downward as your income bracket goes up.
(2) Lloyd is saying in the above quote that that would imply that all the folks that can afford the Model S would be least qualified for a noticeable tax credit.
(3) Lloyd is hinting at the conclusion that it would make the tax credit program for EVs self-neutering in a sense because of (2).
If you look through the prism of the Model S, that may be true.
If you look through the prism of "cheaper EVs", that's not true.
Yes, they could. They could also make rich people pay their fair share of tax. They could require that employers pay workers enough to live on. But Congresspeople are wealthy, or else in debt to the wealthy for their campaign money. So they don't want to help the poor. They want to help the rich. People in government are not stupid or inept. They are doing what benefits themselves and their backers.
We're lucky they're doing anything for EVs at all. The next administration probably won't.
Not to go TOO far off topic, but I don't think this is their call to make. Sure, some corporations skimp out when they can afford not to, but what about small businesses just trying to stay afloat? Minimum wage exists, if the employer is not going below that, then let them be. Otherwise we'll see more small businesses failing because on top of all the other crap that gets piled onto their backs, they now have to spend every dime they can earn, beg and borrow making sure the guy who couldn't care less about their long term success is paid what the government says he should be, not necessarily what's sustainable.
Until there is massive tax reform (eliminating the loopholes and tax deductions people love so much) to even things out, I'd say keep the EV tax credits. The people who would most benefit from the tax credit aren't likely to buy an EV even with the credit at this point (Leaf is only affordable EV at this point). If the tax credit broadens the market and brings cars like the base Model S into play, this is a good thing. Early adopters are almost always in the upper income brackets and enough people need to buy a product to drive the cost down and make it more affordable. It should be a credit at purchase anyway, not a tax credit based on taxable income.
kevincwelch
Active Member
I really take issue with this statement.
Not everyone who is buying a Model S is rich. Some of us have been saving for three years, will have to trade in a car and still have to finance the rest.
Secondly, almost paradoxically, EV cars are expensive. If people with means don't initiate the purchasing of these vehicles, there will be little market and little incentive to make them more affordable. So, who else other than the wealthy well buy these?
Lastly, the government makes the rules of the game, and I play the game.
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kevincwelch
Active Member
I pay 1/3 of my income in the form of taxes. My taxes on my home are criminal. I pay my "fair" share.
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bonnie
I play a nice person on twitter.
I pay a great deal to subsidize the oil companies so others can drive ICE vehicles (those wars are expensive). If others had to pay the true cost of the gasoline that goes in the engine, we'd be having a different conversation (like 'does anyone still drive an ICE anymore???')
I look at the $7500 as a small step towards leveling the playing field.
I look at the $7500 as a small step towards leveling the playing field.
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