Interaction of the EV Tax Credit and Child Tax Credit

[David 90274]

Looking for confirmation from someone who has done their taxes when claiming both the EV tax credit and the child tax credit. Alternatively, someone with actual detailed knowledge of tax credits (as opposed to a wanna-be CPA, like me) would be most welcome. Here is the question:

I want to confirm how refundable and non-refundable tax credits interact prior to (hopefully) buying a Model 3 later this year. The EV tax credit is non-refundable. If your total federal income taxes due for the year are lower than the credit then you do not get a refund for the excess. For example, if your total federal taxes for the year are $5000 and the credit is currently $7500, then your tax bill goes to zero. You do not get a check for $2500 and you cannot carryover it over to future years. The child tax credit is refundable. If the tax credit is larger than your tax bill, then you can get back the "excess". For example, if your federal taxes for the year were $600 and you qualified for $1000 in child tax credits, you would get $400. To be clear, in all of the examples above, I am not talking about the amount you withhold from your paycheck (or pay in estimated taxes), just your actual tax liability for the year. I do understand the difference.

So, what happens when you claim both? Can you still get the benefit of the refundable nature of the child tax credit when you also claim a non-refundable credit? For example, if your federal taxes due are $8000 and you qualify for a $7500 EV credit and $1000 child tax credit (including any phaseouts based on your AGI, etc.), will you get $500 back or do your taxes just go to zero? Still getting the benefit of the refundable tax credit seems consistent with other tax issues but I want to be certain. Anyone been in this situation?

 

[flashflooder]

non-refundable tax credits, such as the EV credit, are taken off of the tax you owe (line 54 on the 1040 form). refundable tax credits are accounted for in the "payments" section of the 1040.

The example you laid out is a little more complicated since the "standard" tax credit is nonrefundable under normal circumstances. If you don't have enough liability to get the full benefit, a portion of it becomes refundable (you have to use a different form [8812] to calculate it, in this case).

So, in a case like yours, I would wager that you'd get a portion of the $500 excess back.

I am not a tax professional.

 

[David 90274]

Thanks, Flashflooder. Looks like you revised your initial answer so I'll have to revise my reply as well.

Glad to see that your understanding largely matches mine. Following the calculations on some of those worksheets without real numbers gets a little hairy. Of course, they also revised the child tax credit for 2018 so it is unclear (at best) how things will work going forward.

 

[Brando]

ask google, tells us what your research reveals (a lot of variables, right?)
Just try to figure out your situation.

 

[flashflooder]

Thanks, Flashflooder. Looks like you revised your initial answer so I'll have to revise my reply as well.

Glad to see that your understanding largely matches mine. Following the calculations on some of those worksheets without real numbers gets a little hairy. Of course, they also revised the child tax credit for 2018 so it is unclear (at best) how things will work going forward.

Yeah, between the tax law changes, the addition of a 3rd child, and a boost in self-employment income, I just gave up on trying to figure out if I'll be able to take advantage of the full credit (assuming, of course, I'm able to take delivery this year...) It'll be what it'll be.

 

[cpa]

Yeah, the non-refundable part of the child tax credit is taken off your tax balance before the EV credit. That calculation I leave to the software because I have very few clients these days with children, and those that do have not purchased a BEV.

So, yes, it is entirely possible that you would not realize the full benefit of the BEV credit because a portion of the child tax credit will reduce your income tax first.

But the good news is that the refundable portion will reduce the balance owed on your SE tax or other taxes.

The above applies to 2017 and earlier. Just how the New and Improved! tax law changes affect this particular calculation is something I will figure out in ten months, just not today. And it very well may not affect it one iota.