US Federal EV Tax Credit - Things to know

[dbsb3233]

Exactly. You need to end up with $7,500 or more in income tax to get the full amount of the credit.

$7500+ in federal income tax liability, yes. But he was talking about withholding, which is incorrect. Withholding is simply a cashflow issue (i.e. when the money is paid). It doesn't affect the total liability amount overall (other than it's potential impact on underpayment penalties that might be added if you significantly underpay during the tax year).

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[eager2own]

I'm not sure what example you are referring to but, if your liability is $7500 and you have withheld (paid) $7500 during the year from your income. There will be no incentive. You have to owe the government money (liability). It's $7500, or more, to take full advantage of the incentive.

You're still wrong. If you withheld (paid) $7500 during the year and you then get a refund of $7,500 thanks to the fed. EV credit, you have taken advantage of and received the full $7,500. As long as you have the liability, the EV credit is an incentive and does have value regardless of what you'd done about your withholdings.

 

[dbsb3233]

I'm not sure what example you are referring to but, if your liability is $7500 and you have withheld (paid) $7500 during the year from your income. There will be no incentive. You have to owe the government money (liability). It's $7500, or more, to take full advantage of the incentive.

Incorrect. "Tax liability" means how much federal income tax you will have paid to the IRS for that tax year. Whether you pay it as bi-weekly withholding from your paycheck, or write them quarterly estimated tax checks, or pay it next April when you file your tax return (or a combination of any of them), makes no difference (other than underpayment penalties, but we'll ignore those for this example).

The tax liability is simply the tax total, regardless of how/when it's paid.

 

[Paulalex01]

Incorrect. "Tax liability" means how much federal income tax you will have paid to the IRS for that tax year. Whether you pay it as bi-weekly withholding from your paycheck, or write them quarterly estimated tax checks, or pay it next April when you file your tax return (or a combination of any of them), makes no difference (other than underpayment penalties, but we'll ignore those for this example).

The tax liability is simply the tax total, regardless of how/when it's paid.

I see your point. You are just paying yourself back the $7500 you paid in.

 

[dbsb3233]

I see your point. You are just paying yourself back the $7500 you paid in.

Think of your federal income tax liability for any specific year as being a medical bill (say, $9000). You owe that $9000, whether you set up a monthly payment plan, write them a check for all $9000 today, or write them a check for $9000 next April. It's still a $9000 liability no matter how and when you pay it. Same with a $9000 2020 federal income tax liability (Line 16 on your Form 1040).

The $7500 tax credit reduces that total tax liability to $1500. If you paid in more than $1500 throughout the tax year in paycheck withholding, you'll get back the difference in a tax refund when you file your 2020 federal tax return next April.

 

[ab13]

I see your point. You are just paying yourself back the $7500 you paid in.

If you use a tax software like TurboTax, you can make a test copy of a tax return and then "make up" the vehicle credit form to see it reflect on the tax form. It's the "Total Tax" line of the 1040 that has to be $7500 to get full credit.

 

[timbop]

I see your point. You are just paying yourself back the $7500 you paid in.

Yes, but the key point is that you are still getting a $7500 benefit FROM THE IRS. If you hadn't bought the car in your example you would get neither a refund nor have to write a check to the IRS when filing your return. By getting the car, the IRS is going to send you $7500 - so you are $7500 in the positive.

 

[Ponypower50]

Help,

So if my total tax I owe is $7481. and they withheld $7645. Last year I got $164. refund.
What additional incentive do I get?

Thanks

 

[SteveJo]

So I was curious as to what my state might be offering. Pennsylvania has a REBATE program offering $750 to those who qualify and are within the first 2500 applicants per year. One of the qualifications is that the BEV's purchase price (excluding taxes and destination fees) is not over $50k. As Maxwell Smart often said ...

 

[macchiaz-o]

Help,

So if my total tax I owe is $7481. and they withheld $7645. Last year I got $164. refund.
What additional incentive do I get?

Thanks

Depends on other credits you may qualify for this year... If this is the only one, and your tax liability is $7,481, then you'd get $7,481 of it given as a credit back.

 

[Chrisw]

Help,

So if my total tax I owe is $7481. and they withheld $7645. Last year I got $164. refund.
What additional incentive do I get?

Thanks

in your example if you bought a qualifying electric vehicle you would get back $7481 For purchasing the vehicle and $164 because you paid in a $164 more than your tax liability.

 

[dbsb3233]

Also note any state incentives you might qualify for. Some cities and power companies provide rebates for BEVs and/or installing a home charger. And may offer special electricity rates.

Here's one list of state incentives:

https://www.energysage.com/electric-vehicles/costs-and-benefits-evs/ev-tax-credits/

 

[timbop]

Help,

So if my total tax I owe is $7481. and they withheld $7645. Last year I got $164. refund.
What additional incentive do I get?

Thanks

Your tax liability is reduced to 0, so you'd get your $7645 back as a refund.

 

[Ned]

Here is a link to the IRS form. Like all IRS forms you have to read them a few times to understand them. My interpretation is that it would cover the cost up to 30% ($1000 max) of you being able to charge your electric vehicle at your home which would include the charger, installation.. etc. Of course consult a tax professional but I think it is vague enough that you could argue the cost of what it takes to be able to charge your vehicle at your home.

https://www.irs.gov/pub/irs-pdf/i8911.pdf

Chris, Thanks for the link. It will sure help me. I tried looking for this info, but was unsuccessful.
Ned

 

[Pibbman]

Thank you for this. I will be checking line 16 on my 1040 tax forms over the last few years tonight. If I do indeed qualify, I may put the Mach-e back on my EV list for next year when I come off lease. I would have to come up with the money as a down payment to make it work for me.

I realize that you posted this last year, but I think it is important to point out that I'm pretty sure you don't get the $7500 Federal Tax credit if you're leasing it. The lessor would get that credit.

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