Need Help Understanding $7,500 Tax Credit

[the_danimal]

I get that the credit is based on liability. But currently, based on my current trajectory, I'm expected to overpay the IRS ~$5K this year. Yikes.

Either way, since I don't have any liability, does that mean I do not get any of the credit?

 

[JeffK]

I get that the credit is based on liability. But currently, based on my current trajectory, I'm expected to overpay the IRS ~$5K this year. Yikes.

Either way, since I don't have any liability, does that mean I do not get any of the credit?

Your liability is determined by your income. (It doesn't matter what you've paid)

Example from 2017, find your taxable income https://www.irs.gov/pub/irs-pdf/i1040tt.pdf

The tax credit is like you paying an extra $7500 toward your tax liability... so if your liability is over $7500 you'd get your $5K plus $7500 back.

 

[fasteddie7]

Do you file a 1040, 1040x or 1040a?

 

[mekberg]

It's a credit toward your gross tax liability. Assuming you owe at least $7,500 you should be credited for the full amount.

In your scenario you would be getting $12,500 back.

You could change your withholdings now to break even at tax time.

 

[Haxster]

It's a tax CREDIT. If you overpay by $5K, you'll probably see a $12.5K refund.

 

[the_danimal]

Ok, so it’s just like the home buyers credit in 07/08?

Appreciate it, not sure why I’m so confused by this, then again, I hate tax law.

 

[outie]

Just because you’ve withheld more than you owe does not mean you don’t have tax liability.

Let’s say you made 200k and your tax rate at 25% you have a 50k tax liability. Despite you’ve withheld 55k so you will get 5k tax refund, you will get $7,500 additional back.

 

[ItsNotAboutTheMoney]

What Line on the 1040 Represents a Tax Liability?

 

[JeffK]

Ok, so it’s just like the home buyers credit in 07/08?

Appreciate it, not sure why I’m so confused by this, then again, I hate tax law.

Yes, this credit is like other credits. One thing to keep in mind is that this is a non-refundable tax credit meaning that if you don't have the liability you won't get anything above your liability back.

For example, if you only have an income of $30k and someone you know gives you cash for a Model 3 out of the goodness of their heart, you won't get the full credit.

 

[Dave Mac]

Ok, so it’s just like the home buyers credit in 07/08?

Appreciate it, not sure why I’m so confused by this, then again, I hate tax law.

Nope. The homebuyer's credit was refundable so liability didn't matter.

 

[outie]

Ok, so it’s just like the home buyers credit in 07/08?

Appreciate it, not sure why I’m so confused by this, then again, I hate tax law.

No, that credit can carryover afaik. This EV tax credit does not carryover so if you can’t take all of it in the tax year it’s gone.

 

[fasteddie7]

It should be line 44 on a 1040 it will say tax. If the number on that line is less than $7500 the credit will be reduced to whatever that line is.

 

[the_danimal]

No, that credit can carryover afaik. This EV tax credit does not carryover so if you can’t take all of it in the tax year it’s gone.

Right, I get that that one carried over where this credit doesn’t. Thanks all!

 

[ItsNotAboutTheMoney]

Yes, this credit is like other credits. One thing to keep in mind is that this is a non-refundable tax credit meaning that if you don't have the liability you won't get anything above your liability back.

For example, if you only have an income of $30k and someone you know gives you cash for a Model 3 out of the goodness of their heart, you won't get the full credit.

And just in case "non-refundable" confuses anyone reading, it doesn't mean you can't get a refund because of it.
Non-refundable credits reduce the amount you need to pay and that won't drop below 0.
But refundable credits act as a payment (they appear as such on the form), so the government will "refund" the money to you even if you have no liability.

 

[the_danimal]

It should be line 44 on a 1040 it will say tax. If the number on that line is less than $7500 the credit will be reduced to whatever that line is.

You’re right, line 44 is your liability.

 

[ewoodrick]

I get that the credit is based on liability. But currently, based on my current trajectory, I'm expected to overpay the IRS ~$5K this year. Yikes.

Either way, since I don't have any liability, does that mean I do not get any of the credit?

It is a credit on the TAX that you owe. It has nothing to do with what you have been taking out of your paycheck.
Go to last years taxes and look for a line that I believe is labeled TAX DUE. Is that more than $7,500, then you are good.

The reality is, that if you want to pay the minimum each month, then when you buy a car, you would adjust your deduction to take out $7500 less