Tax Credit Question Is it true ?

[weflybye]

Is the following an accurate assessment?

The tax credit is not refundable, which means you must have federal tax due to take advantage of it. If your tax due is less than the credit amount, you can only claim the credit up to the amount of your tax due. You cannot use excess amounts of the credit on future- or previous-year tax returns.

Does this means in order to advantage of the Whole $7500 Tax Credit you need to owe taxes of at least $7500 (in excess of what was taken out of your pay already ) for the year you purchased your qualified Electric Vehicle?

Example:
If you still owe $2000 at the end of the year in Federal Taxes for 2023 you only get a $2000 credit. The rest of the credit is lost.

 

[Mayo]

yes that is exactly the way it works. 2024 will be a time of purchase credit deducted from the sale price. You must also qualify under the income caps. IRS loophole : If your purchase is financed with a co-owner only one of you can claim the federal tax credit. So between you and the co-owner decide who will claim the credit for the following tax year. Hint hopfully the co-owner has a much higher tax liability then you do. DISCLAIMER I am not a tax consultant discuss this with your tax advisor and make an educated and legal decision.

 

[ucmndd]

Does this means in order to advantage of the Whole $7500 Tax Credit you need to owe taxes of at least $7500 (in excess of what was taken out of your pay already ) for the year you purchased your qualified Electric Vehicle?

No. Withholdings have nothing to do with what your tax liability is.

 

[ucmndd]

yes that is exactly the way it works.

Except it’s not. OP, like most of the rest of this country, doesn’t understand the difference between tax withholdings and tax liability.

 

[Need]

Is the following an accurate assessment?

The tax credit is not refundable, which means you must have federal tax due to take advantage of it. If your tax due is less than the credit amount, you can only claim the credit up to the amount of your tax due. You cannot use excess amounts of the credit on future- or previous-year tax returns.

Does this means in order to advantage of the Whole $7500 Tax Credit you need to owe taxes of at least $7500 (in excess of what was taken out of your pay already ) for the year you purchased your qualified Electric Vehicle?

Example:
If you still owe $2000 at the end of the year in Federal Taxes for 2023 you only get a $2000 credit. The rest of the credit is lost.

When you owe $2000 tax when you do your tax, that's NOT your tax liability for last year. Over the year, they already take some out of your paycheck (or you have to pay Estimated Tax over the year if you are a business, so IRS already got some of your tax payments. The total of your tax liability has to be $7500 or over to get the full $7500 tax credit.

For example, if you made $80,000 a year, you probably pay around $10k to IRS. Over the year, your paycheck will deduct a little toward it, probably added up to $8000. Now you owe IRS $2000 when you file. But you have $7500 tax credit. So it got subtracted from the $10K. Instead of still having to pay them $2000, they pay you $5500 back.

 

[acpd]

Is the following an accurate assessment?

The tax credit is not refundable, which means you must have federal tax due to take advantage of it. If your tax due is less than the credit amount, you can only claim the credit up to the amount of your tax due. You cannot use excess amounts of the credit on future- or previous-year tax returns.

Does this means in order to advantage of the Whole $7500 Tax Credit you need to owe taxes of at least $7500 (in excess of what was taken out of your pay already ) for the year you purchased your qualified Electric Vehicle?

Example:
If you still owe $2000 at the end of the year in Federal Taxes for 2023 you only get a $2000 credit. The rest of the credit is lost.

My guess is no it won't be lost.

Say your total tax is $20,000
You already paid $18,000 via payroll deduction
You owe $2,000
Tax Credit $7,500

You get $5,500 back.

Someone please correct me if I am wrong.

 

[exxxviii]

The tax credit is not refundable, which means you must have federal tax due to take advantage of it. If your tax due is less than the credit amount, you can only claim the credit up to the amount of your tax due. You cannot use excess amounts of the credit on future- or previous-year tax returns.

A lot of folks mix up the difference between a tax liability and tax refund/bill.

The simple answer is that if have an adjusted gross income (this is your income after your deductions are all subtracted) of around $56K, then you will have a tax liability of around $7,500 USD and would therefore get all that back, regardless of your withholding. This equates to about a gross income of $70K for most people (a little higher for people who have 401(k) savings withheld).

If you earn below $70K, then you will not get to use all of the credit on your purchase.

 

[Mayo]

My guess is no it won't be lost.

Say your total tax is $20,000
You already paid $18,000 via payroll deduction
You owe $2,000
Tax Credit $7,500

You get $5,500 back.

Someone please correct me if I am wrong.

Yes ACPD you are correct as far as I understand it.

 

[TesslaBull]

A lot of folks mix up the difference between a tax liability and tax refund/bill.

The simple answer is that if have an adjusted gross income (this is your income after your deductions are all subtracted) of around $56K, then you will have a tax liability of around $7,500 USD and would therefore get all that back, regardless of your withholding. This equates to about a gross income of $70K for most people (a little higher for people who have 401(k) savings withheld).

If you earn below $70K, then you will not get to use all of the credit on your purchase.

Translation: if you don't pay enough taxes to get the full $7500 credit, you probably shouldn't have bought a Tesla

 

[snpiperpilot]

Bottom line. To owe $7500 under 2022 tax rates you need to earn about $65000 using the standard deduction. Might be a bit different by next year but not a lot. If I end up eligible I’ll adjust my Ira payments to generate whatever income I need to max out the use of the tax credit.

 

[runteemc]

Does this means in order to advantage of the Whole $7500 Tax Credit you need to owe taxes of at least $7500 (in excess of what was taken out of your pay already ) for the year you purchased your qualified Electric Vehicle?

Example:
If you still owe $2000 at the end of the year in Federal Taxes for 2023 you only get a $2000 credit. The rest of the credit is lost.

No, tax credit has nothing to do with tax withholding.

If you owe $2000 at the end of 2023 because you under-withheld, you will get $5500 tax refund.

If you over-withheld, and are due for $5000 refund at end of 2023, you will get a $12,500 tax refund.

(This is assuming your total tax for 2023 is at least $7500.)

 

[Trustedpro]

A lot of folks mix up the difference between a tax liability and tax refund/bill.

The simple answer is that if have an adjusted gross income (this is your income after your deductions are all subtracted) of around $56K, then you will have a tax liability of around $7,500 USD and would therefore get all that back, regardless of your withholding. This equates to about a gross income of $70K for most people (a little higher for people who have 401(k) savings withheld).

If you earn below $70K, then you will not get to use all of the credit on your purchase.

That is not entirely true. If your $70K of income is derived from self-employment reported on schedule C or from a K-1 (not uncommon), the income is subject to self-employment tax at a rate of 15.3% in addition to your regular tax. There are other taxes included in total taxes such as penalty on early IRA or 401K distributions and household employer taxes for example.

 

[exxxviii]

That is not entirely true. If your $70K of income is derived from self-employment reported on schedule C or from a K-1 (not uncommon), the income is subject to self-employment tax at a rate of 15.3% in addition to your regular tax.

It’s true for the vast number of Americans. If someone does not understand the difference between liability or bill or credit or deduction, then they need a simple picture.

 

[E46M3]

When you owe $2000 tax when you do your tax, that's NOT your tax liability for last year. Over the year, they already take some out of your paycheck (or you have to pay Estimated Tax over the year if you are a business, so IRS already got some of your tax payments. The total of your tax liability has to be $7500 or over to get the full $7500 tax credit.

For example, if you made $80,000 a year, you probably pay around $10k to IRS. Over the year, your paycheck will deduct a little toward it, probably added up to $8000. Now you owe IRS $2000 when you file. But you have $7500 tax credit. So it got subtracted from the $10K. Instead of still having to pay them $2000, they pay you $5500 back.

is this federal income tax only or state, too?

 

[ucmndd]

is this federal income tax only or state, too?

A federal tax credit has nothing to do with your state taxes.

 

[Hiline]

I can't believe we're still having this conversation.

 

[Ray_R]

I can't believe we're still having this conversation.

But what if it’s Tuesday? Is the tax credit still valid on a Tuesday?

 

[ucmndd]

But what if it’s Tuesday? Is the tax credit still valid on a Tuesday?

That depends on your withholdings.

 

[TesslaBull]

Really? Do you know how many people think they shouldn't work overtime because they think they will make *less* money because they get taxed more? It's not surprising that people don't understand how taxes work, IMO.

 

[E46M3]

I can't believe we're still having this conversation.

I can't believe you just said this..