One quick question about a tax credit.

[yfaney]

Please don't feel bad if I ask a question which is repetitively posted, but tax is always complicated and confusing me...

I am an employee, and let's say I get my Mach-E in August(I ordered in last December and unfortunately haven't got any good news yet though) and I withhold my tax enough amount in my W-4.

If I do not owe any tax due this year, then will I still get the benefit of EV tax credit as a portion of my tax refund or will it be gone?

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[Djynn81]

Hello, New to this also but getting car this year. If you do not owe taxes to Fed you do not get a rebate. Only if you owe the feds back on taxes for the year dose the rebate apply. This is what I gather.

 

[mdpmdp]

It has nothing to do with your withholdings. Check your previous year's tax return, the line item that relates to the tax credit is line 16.

 

[yfaney]

It has nothing to do with your withholdings. Check your previous year's tax return, the line item that relates to the tax credit is line 16.

I see some in line 16 in my 1040 and it's more than 7,500. Is it a good thing?

 

[1969Camaro]

If you dont owe at least 7500 in Fed tax after all deductions then the EV credit is as valuable to you. For example- If last year you paid 10,000 income tax and you expect all other things to be about the same in your life you could change your withholdings to take more home now. Next years return will take care of the reconciliation.

 

[mdpmdp]

I see some in line 16 in my 1040 and it's more than 7,500. Is it a good thing?

Yes, line 16 is the total tax you owe to the government. Whether you get a refund or owe additional money when you file taxes is based on your withholdings in relation to line 16, e.g. line 16 tax owed is $15,000 and you withheld $20,000 via payroll deductions, then you will be owed a $5,000 refund when you file taxes.

At a basic level, as long as line 16 is over $7,500, you should receive the full tax credit. Gets slightly complicated with other credits (child tax credit, other non-refundable credits) if you claim those.

As a further (basic) example, if line 16 tax owed is $8,000 and you withheld $10,000 via payroll deductions, you would typically receive a $2,000 refund. With the EV tax credit, you would claim the full $7,500 credit to bring your tax owed down to $500 ($8,000 owed less the $7,500 credit), and you would receive a $9,500 refund ($10,000 withholdings less $500 taxes owed) instead. If your tax owed is less than $7,500, then you will only capture the credit for that line item amount.

 

[yfaney]

Yes, line 16 is the total tax you owe to the government. Whether you get a refund or owe additional money when you file taxes is based on your withholdings in relation to line 16, e.g. line 16 tax owed is $15,000 and you withheld $20,000 via payroll deductions, then you will be owed a $5,000 refund when you file taxes.

At a basic level, as long as line 16 is over $7,500, you should receive the full tax credit. Gets slightly complicated with other credits (child tax credit, other non-refundable credits) if you claim those.

As a further (basic) example, if line 16 tax owed is $8,000 and you withheld $10,000 via payroll deductions, you would typically receive a $2,000 refund. With the EV tax credit, you would claim the full $7,500 credit to bring your tax owed down to $500 ($8,000 owed less the $7,500 credit), and you would receive a $9,500 refund ($10,000 withholdings less $500 taxes owed) instead. If your tax owed is less than $7,500, then you will only capture the credit for that line item amount.

Oh, you clarified my question perfectly. Thank you so much!

 

[Maquis]

The easiest way to think about it….if you have zero dollars withheld, would you owe more than $7500?

 

[Dancefreak]

Hello, New to this also but getting car this year. If you do not owe taxes to Fed you do not get a rebate. Only if you owe the feds back on taxes for the year dose the rebate apply. This is what I gather.

No. No. No. That's not at all how it works.

 

[Jimrpa]

The question is not “will I write a check to the Feds on April 15?” The question (in very simple terms) is “Did I owe the Feds income taxes for 2021?” Line 16 (generally answers that question for you.

 

[Bmr4MachE]

Okay. This helps alot. So this has NOTHING to do with the amount of tax with held.

So just to double check. What if you are a contract employee for the first time ever this year (thanks Covid) and no taxes are currently taken from you pay but you will obviously owe next year. How would you know how much you qualify for? Base it on how much money you'd expect to make this yea?

 

[Murse-In-Airy]

Okay. This helps alot. So this has NOTHING to do with the amount of tax with held.

So just to double check. What if you are a contract employee for the first time ever this year (thanks Covid) and no taxes are currently taken from you pay but you will obviously owe next year. How would you know how much you qualify for? Base it on how much money you'd expect to make this yea?

Yes. Look at you total
Income
Minus your total deductions to estimate your taxable income. Look that taxable income up on the tax table for the amount you owe the government. Whether you prepay through withholding, or making estimated tax payments quarterly, or wait until April to pay it, THAT is your income tax. If you bought a qualifying EV, you can subtract $7500 from THAT amount. If you paid already, you’ll get it back. If you didn’t pay, then it’s $7500 less that you’ll have to pay.

 

[dbsb3233]

The part that's usually confusing to people is understanding what "tax liability" means. That's the TOTAL TAX number. That's your total tax liability for the whole year, not accounting for what you've already paid in through the year via paycheck withholding. Ignore what you've already paid in via withholding for this exercise. What counts is the TOTAL TAX.

Once you've calculated your TOTAL TAX liability for the year, you then get to subtract $7500 from it (but you can't go negative). If your TOTAL TAX would have been $9000, your new TOTAL TAX will be $1500 after the credit. If your TOTAL TAX would have been $5000, your new TOTAL TAX will be $0.

After establishing the new TOTAL TAX number, then you'll get to subtract any payments you've already made (usually via paycheck withholding). And that number can go negative (meaning you'd get a refund if it does).

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