I was just crunching some numbers and it looks like the amount of taxes withheld this year is around 12% compared to about 15% of my income last year. Is that correct on tax policy changes? Based on last years estimate I had no issues getting the full tax credit, but it looks like I will be right on the edge this year for getting the full tax credit. I worked a lot more overtime last year so I am having to adjust a few things to get the full tax credit this year which includes working more overtime.
Was this covered anywhere in the thread previously? I don't want to read through everything in here and didn't see it on the recent posts. My only concern is that I almost always get a refund and that looks to be erased with the tax credit.
Here is what I found. I do make more than the price of the car and own my house. Will leave it at that for now.
2018 Income Tax Brackets
Rate Individuals Married Filing Jointly
12% $9,526 to $38,700 $19,051 to $77,400
22% 38,701 to $82,500 $77,401 to $165,000
24% $82,501 to $157,500 $165,001 to $315,000
32% $157,501 to $200,000 $315,001 to $400,000
Yes, lower withholding in 2018 is normal and due to the tax bill passed in December 2017. Its only relevance to this discussion is the implication that (all else equal) you will owe less in income tax for 2018 than the prior year, which is true for most but not all taxpayers.
You appear to be missing some valuable information--like the 10% marginal tax bracket. For sake of argument, let's say you are MFJ.
Rate Married Filing Jointly
10% Up to $19,050
12% $19,051 to $77,400
22% $77,401 to $165,000
....
Taxable income is the result of: total income minus deductions. On the first $19,050 of taxable income, you will owe $1,905 in tax. On the next tranche (from $19,051 to $77,400), you will owe 12%, up to your taxable income (if less than $77,400). So, $60,000 in taxable income (to pick a number) means: $1,905 + [($60,000-$19,051) * .12] = $1,905 + $4,914 = $6,819 in tax owed.
In this case the taxpayer, after the tax credit, would owe zero in tax, and will receive a refund of all withholding and other tax prepayments. The "excess" ($681) of the $7,500 over the tax owed is lost forever.
To avoid losing any amount of the $7,500 credit, you can increase taxable income in 2018 (by for example, converting a traditional IRA to a Roth IRA, or pushing income from 2019 into 2018) or decrease deductions (which isn't really a strategy anymore for most taxpayers with the greatly increased standard deduction). I would consider working more overtime or doing the IRA conversion if you happen to have a traditional IRA.