US Federal EV Tax Credit - Things to know

RickMachE

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Exactly.. I think you're both saying the same thing. Since historically I have never owed on my taxes, $7500 is not going back into my pocket. So while i may be eligible based on my tax liability being over the threshold I will not be benefitting from it the way it stands now.
Just make sure you're understanding it correctly. "I may be eligible based on my tax liability being over the threshold" makes me question that. I think you don't understand.

Example:

John earns X dollars. John's tax liability, i.e. tax owed, i.e. line 24, is $8,000. John has withheld $9,000 through payroll withholding. John is going to get back $1,000 from the IRS.

John bought a Mach-E, which has a $7,500 tax credit. Since his tax liability is $8,000, John can utilize the full tax credit, and his tax liability is now $500. Since he withheld $9,000, he'll get back $8,500 from the IRS.

Note that the IRS terminology confuses many.

Line 24 is "Total Tax". This is before any credits get applied. If that's $7,500 or more, you're good. If it's positive, but less than $7,500, then you get a partial credit.

There are several ways to increase your tax as the end of the year approaches:

1) Convert a traditional IRA to a Roth IRA, which is considered income. Do the math and convert just enough to raise your tax to cover the credit.

2) Sell stocks, bonds, mutual funds, etc. to generate a long term capital gain, of sufficient amount to cover the tax.
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Exactly.. I think you're both saying the same thing. Since historically I have never owed on my taxes, $7500 is not going back into my pocket. So while i may be eligible based on my tax liability being over the threshold I will not be benefitting from it the way it stands now.
Maybe I'm misreading what you mean by that, but no, you'll still absolutely benefit as long as your total net tax before the credit is not $0.

And that quoted passage above is very misleading. In most cases, it WILL put money back in your pocket. It'll just be in the form of federal tax return refund rather than at the time of purchase. And it may or may not be a full $7500 refund (depends on your tax return).

When you say "you historically have never owed on my taxes", you mean having to pay more when filing your tax return, right? All that means is that you already paid (via paycheck withholding) more than enough throughout the year, and when filing your tax return you end up with a refund.

Let's say you make $80k/yr and your total federal tax liability for the year is $9000. But your paycheck withholding for the year adds up to $9500. That means you would normally be due a $500 refund when filing your tax return. But when you buy an EV that qualified for the federal tax credit, your total federal tax liability for the year goes from $9000 to just $1500 ($7500 credit). Your tax refund now jumps from $500 to $8000.

If you make less money and your total federal tax liability for the year is only $4000, then you don't get the full $7500 credit. But you still get $4000 of it.
 

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Just make sure you're understanding it correctly. "I may be eligible based on my tax liability being over the threshold" makes me question that. I think you don't understand.

Example:

John earns X dollars. John's tax liability, i.e. tax owed, i.e. line 24, is $8,000. John has withheld $9,000 through payroll withholding. John is going to get back $1,000 from the IRS.

John bought a Mach-E, which has a $7,500 tax credit. Since his tax liability is $8,000, John can utilize the full tax credit, and his tax liability is now $500. Since he withheld $9,000, he'll get back $8,500 from the IRS.

Note that the IRS terminology confuses many.

Line 24 is "Total Tax". This is before any credits get applied. If that's $7,500 or more, you're good. If it's positive, but less than $7,500, then you get a partial credit.

There are several ways to increase your tax as the end of the year approaches:

1) Convert a traditional IRA to a Roth IRA, which is considered income. Do the math and convert just enough to raise your tax to cover the credit.

2) Sell stocks, bonds, mutual funds, etc. to generate a long term capital gain, of sufficient amount to cover the tax.
It IS confusing... I guess the lucky part for me is that I won't have mine in 2021 and won't need to worry about it, and hopefully when/if a version of the new plan passes it'll be simplified. What you wrote makes perfect sense, but then I read things like this:

The EV tax credit is currently a nonrefundable credit, so the government does not cut you a check for the balance. Let's say you owed the federal government $10,000 in taxes when filing your 2021 taxes. Let's also say you purchased a Ford Mustang Mach-E in 2021, which is eligible for the full $7,500 credit amount. Your federal tax balance would then fall to $2,500 owed. If you owed under $7,500, the EV tax credit would wipe that away entirely to a $0 balance, even if it takes care of the tax bill and then some. Presently, purchasing an EV can wipe away tax bills, but it does not put cash directly into your pocket. Keep that in mind if you're someone who typically receives a federal refund when filing taxes.
If you're a tax accountant, or even a consumer who's actually received the credit already I have no reason not to believe you its just frustrating that pretty much everything I've read online states something similar to whats above. That being posted everywhere definitely let to my decision to order as opposed to trying to find something on the lot as I wasn't expecting to get anything back if I took deliver in '21.

Ford Mustang Mach-E US Federal EV Tax Credit - Things to know Screen Shot 2021-12-06 at 12.00.57 AM


Ford Mustang Mach-E US Federal EV Tax Credit - Things to know Screen Shot 2021-12-06 at 12.01.24 AM


Ford Mustang Mach-E US Federal EV Tax Credit - Things to know Screen Shot 2021-12-06 at 12.02.34 AM


Screen Shot 2021-12-06 at 12.02.55 AM.png
 
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RickMachE

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Read what you want. It says the same thing.
 

hls811

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Read what you want. It says the same thing.
John bought a Mach-E, which has a $7,500 tax credit. Since his tax liability is $8,000, John can utilize the full tax credit, and his tax liability is now $500. Since he withheld $9,000, he'll get back $8,500 from the IRS.
Presently, purchasing an EV can wipe away tax bills, but it does not put cash directly into your pocket. Keep that in mind if you're someone who typically receives a federal refund when filing taxes.
It looks like it says the exact opposite.
 
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dbsb3233

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It IS confusing... I guess the lucky part for me is that I won't have mine in 2021 and won't need to worry about it, and hopefully when/if a version of the new plan passes it'll be simplified. What you wrote makes perfect sense, but then I read things like this:

The EV tax credit is currently a nonrefundable credit, so the government does not cut you a check for the balance. Let's say you owed the federal government $10,000 in taxes when filing your 2021 taxes. Let's also say you purchased a Ford Mustang Mach-E in 2021, which is eligible for the full $7,500 credit amount. Your federal tax balance would then fall to $2,500 owed. If you owed under $7,500, the EV tax credit would wipe that away entirely to a $0 balance, even if it takes care of the tax bill and then some. Presently, purchasing an EV can wipe away tax bills, but it does not put cash directly into your pocket. Keep that in mind if you're someone who typically receives a federal refund when filing taxes.
If you're a tax accountant, or even a consumer who's actually received the credit already I have no reason not to believe you its just frustrating that pretty much everything I've read online states something similar to whats above. That being posted everywhere definitely let to my decision to order as opposed to trying to find something on the lot as I wasn't expecting to get anything back if I took deliver in '21.
That CNET passage is horribly worded. What they really mean is that if your total tax for the year is <$7500, you don't get credit for the full $7500. You only get credit for your total tax UP TO $7500.

Their "get money back" is grossly misleading though, because to most people, "getting money back" means actually getting that much of a refund on their tax return. But that's not how CNET means it. They mean "get credit for". Like for instance, if your total tax for the year is $6000, you don't get credit for the remaining $1500. That's all "refundable" means.

"Refundable" tax credits (an awful policy, BTW) means you can actually get more in credit than your total tax. That overage is no longer a credit against your taxes, it's flat-out welfare (getting more from the govt than you paid in for the year).
 

dbsb3233

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The main thing CNET misleads with is failing to account for any taxes (withholding) paid in already. If you'd paid ZERO in with withholding (or estimated taxes, or prior year refund applied to this year), then they would be correct. You would never get a refund because you wouldn't have paid any in. In that case, a non-refundable tax credit only takes the net tax to zero (or higher if your total tax was >$7500). But never NEGATIVE (where you would get money back). That's what they really mean. A refundable tax credit can push the net tax total negative, a non-refundable can't.

But most people DO pay in through the year via withholding, so whether they actually get a refund or not depends on factoring that in too.
 

RickMachE

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That being posted everywhere definitely let to my decision to order as opposed to trying to find something on the lot as I wasn't expecting to get anything back if I took deliver in '21.
Then you made a mistake.

Go get your 2020 tax return. Assuming your income is similar in 2021, go find the line 24, on the back. If that number is $7,500 or higher, then you get the full tax credit. If it's lower, then you don't. Couldn't be more simple.

What you paid in withholding tax is IRRELEVANT.

What you paid in quarterly estimated tax (if anything), is IRRELEVANT.

Most people that can afford a Mach-E will have no problem utilizing the tax credit in full, unless they are retired. A retiree that has no employment, and only income from interest, dividends, and capital gains likely has to take some steps to increase their income, and hence their tax, to utilize the tax credit. Options include converting traditional IRAs to Roth, or selling investments to generate taxable gains. But that clearly isn't an issue for you.

In 2009 we bought a hybrid, and on our 2009 tax return took the tax credit.
In 2018 we bought a plug-in hybrid, and our our 2018 tax return took the tax credit. Because it was a lease, we did not get the tax credit, but it was added into the rebates on the vehicle, which totaled $11,007.
As retirees, we're going to do one of the above strategies to fully take advantage of the tax credit for 2021.

Have a good day.
 
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It IS confusing... I guess the lucky part for me is that I won't have mine in 2021 and won't need to worry about it, and hopefully when/if a version of the new plan passes it'll be simplified. What you wrote makes perfect sense, but then I read things like this:
I agree, this stuff can be confusing (probably by design). I think your best bet is to consult a certified tax preparer when the time comes. It will cost you some money but at least it will be done right, which could save you thousands of dollars, money well spent in my opinion.
 

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It IS confusing... I guess the lucky part for me is that I won't have mine in 2021 and won't need to worry about it, and hopefully when/if a version of the new plan passes it'll be simplified. What you wrote makes perfect sense, but then I read things like this:

The EV tax credit is currently a nonrefundable credit, so the government does not cut you a check for the balance. Let's say you owed the federal government $10,000 in taxes when filing your 2021 taxes. Let's also say you purchased a Ford Mustang Mach-E in 2021, which is eligible for the full $7,500 credit amount. Your federal tax balance would then fall to $2,500 owed. If you owed under $7,500, the EV tax credit would wipe that away entirely to a $0 balance, even if it takes care of the tax bill and then some. Presently, purchasing an EV can wipe away tax bills, but it does not put cash directly into your pocket. Keep that in mind if you're someone who typically receives a federal refund when filing taxes.
If you're a tax accountant, or even a consumer who's actually received the credit already I have no reason not to believe you its just frustrating that pretty much everything I've read online states something similar to whats above. That being posted everywhere definitely let to my decision to order as opposed to trying to find something on the lot as I wasn't expecting to get anything back if I took deliver in '21.

Screen Shot 2021-12-06 at 12.00.57 AM.png


Screen Shot 2021-12-06 at 12.01.24 AM.png


Screen Shot 2021-12-06 at 12.02.34 AM.png


Screen Shot 2021-12-06 at 12.02.55 AM.png
I think the key thing you should try to understand, not maybe take anyone's word here because you clearly are not convinced but to research on your own (because this is useful to know outside of the EV tax credit context), is the difference between what you have paid towards your taxes throughout the year versus what the IRS says you ultimately owe for the year.

The IRS requires people to pay their taxes as they earn money throughout the year. If you asked your company, 'hey, can you make no tax deductions from my paycheck, I will pay it all on my own at tax time, I'd rather have all of the money upfront now and pay the IRS one big lump sum in April' , you would be denied. A wage earning employee or a profitable company that paid $0 throughout the year in taxes and then paid 100% of what they owe when they file taxes in April of the next year would be breaking the law.

When you file your taxes, you compare what you have paid to the IRS throughout the year versus what you ultimately owe. If you've paid them more than you owe, you've overpaid and they refund the difference. If you haven't paid them enough throughout the year, you've underpaid, and you have to make up the difference.

What people on this thread are trying to explain is that, what you have paid throughout the year ahead of time is irrelevant. You just have to look at what the IRS says you owed for the year (regardless of how much you were paying them throughout the year through tax withholdings from your paycheck from work).

If the IRS says your total tax bill for the year is at least $7,500, you would benefit from the credit in full. Despite being called a 'nonrefundable' tax credit, in this scenario, you do get a refund for up to what your total tax liability for the year was. As mentioned by others, it's really only retirees who face a problem with this, because if you are not working, you likely would not have a $7,500 tax bill to the IRS for the year (and your tax withholdings for the year would also be minimal because you are not earning a paycheck when retired).

Note that almost everyone falls into the category of getting a check from the IRS for the EV tax credit because remember, everyone has to pay taxes as they go throughout the year so not many people do their taxes in April and say, 'yep, gotta write a check to the IRS for $9,563 to go with this tax return' or whatever - at least, no one in a household earning say $50,000, $100,000, $150,000, $200,000, would ordinarily be in that situation and I'd think you'd agree, given how widely discussed the EV tax credit is, it's not like the typical person claiming the EV tax credit is earning $500,000, $600,000, $700,000 a year in order to take advantage of it, where they say 'I'm so glad I can use this $7,500 credit to lower the $10,580 check I have to write to the IRS to only $3,080 this coming April'.
 

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I'll admit I did not scour this entire thread for this question but...

If you got a Mach-E in 2021 but also sold it in 2021, can you still claim the $7500 since you were the first owner?
 

dbsb3233

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I'll admit I did not scour this entire thread for this question but...

If you got a Mach-E in 2021 but also sold it in 2021, can you still claim the $7500 since you were the first owner?
You should be able to as long as you can successfully claim it was not bought for the intention of resale. If you bought it intending to use it for personal use, but later in the year decided to get rid of it, that should count. But if you bought it intending just to flip it, then no.

As with anything IRS, it ultimately comes down to trying to sell your case to the IRS agent should you ever get questioned/audited after the fact.

https://www.irs.gov/instructions/i8936

The following requirements must be met to qualify for the credit.
  • You are the owner of the vehicle. If the vehicle is leased, only the lessor and not the lessee, is entitled to the credit.
  • You placed the vehicle in service during your tax year.
  • The vehicle is manufactured primarily for use on public streets, roads, and highways.
  • The original use of the vehicle began with you.
  • You acquired the vehicle for use or to lease to others, and not for resale.
  • You use the vehicle primarily in the United States.
 

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Tell me if any of this is mistaken (as of late Dec 2021): Congress did not pass the BBB bill that would change the Federal tax credit rules discussed elsewhere in this Forum. It is unclear if the BBB bill will be considered any further in 2022, in whole or in pieces.
Today, the existing law regarding the Federal tax credit remains applicable. The MME currently qualifies for the $7,500 tax credit. However, due to Ford's total production of qualifying EV units (estimated at about 150,000 vehicles sold in US as of Sept 2021), the 200,000 unit cap may likely be exceeded in 2022. The tax credit would phase out, cut by half in the quarter following the quarter when the cap was reached. The second quarter after that, no Federal tax credit.
So, it appears possible that someone ordering a 2022 MME in late 2021, who must wait 28 weeks, or longer, for delivery/purchase of the EV, could encounter the tax credit phase out. An MME order made 6 months from now seems likely to encounter no Federal tax credit. (Even if Ford accelerates the production of MME units and shortens the delivery time, the cap will still likely be exceeded in 2022 assuming production of its other EV units continues as before.)
Also, future orders for MME may decline as Ford reaches the cap and their EVs are no longer qualified for the Federal tax credit (joining Tesla and Chevy and perhaps Toyota, too). Other manufacturers (such as VW and Hyundai, KIA, and newcomers) may still have the "advantage" of qualifying for the Federal tax credit on their EVs sold in the US. Or course, some States have applicable legislation that will continue to encourage electric vehicle use there. There are currently 11 States with ZEV, Zero Emissions Vehicle, programs/incentives and others considering it.
 

dbsb3233

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Tell me if any of this is mistaken (as of late Dec 2021): Congress did not pass the BBB bill that would change the Federal tax credit rules discussed elsewhere in this Forum. It is unclear if the BBB bill will be considered any further in 2022, in whole or in pieces.
Today, the existing law regarding the Federal tax credit remains applicable. The MME currently qualifies for the $7,500 tax credit. However, due to Ford's total production of qualifying EV units (estimated at about 150,000 vehicles sold in US as of Sept 2021), the 200,000 unit cap may likely be exceeded in 2022. The tax credit would phase out, cut by half in the quarter following the quarter when the cap was reached. The second quarter after that, no Federal tax credit.
So, it appears possible that someone ordering a 2022 MME in late 2021, who must wait 28 weeks, or longer, for delivery/purchase of the EV, could encounter the tax credit phase out. An MME order made 6 months from now seems likely to encounter no Federal tax credit. (Even if Ford accelerates the production of MME units and shortens the delivery time, the cap will still likely be exceeded in 2022 assuming production of its other EV units continues as before.)
Also, future orders for MME may decline as Ford reaches the cap and their EVs are no longer qualified for the Federal tax credit (joining Tesla and Chevy and perhaps Toyota, too). Other manufacturers (such as VW and Hyundai, KIA, and newcomers) may still have the "advantage" of qualifying for the Federal tax credit on their EVs sold in the US. Or course, some States have applicable legislation that will continue to encourage electric vehicle use there. There are currently 11 States with ZEV, Zero Emissions Vehicle, programs/incentives and others considering it.
I think that pretty well sums it up. Although I will add that as the tax credit phases out, the chances of a manufacturer dropping the MSRP (US) seem likely. Probably not by the full amount of the tax credit, but some. Of course that all depends on how popular the vehicle remains. If there's still long lines for them, no reason to be in a big hurry to lower the price when the tax credit drops and eventually runs out.

There might be a slim chance of a skinny bill passing early next year to extend the tax credit, but I wouldn't bet on it. Although when we get to the point that the 3 main US manufacturers run out (Ford, GM, Tesla) and it's only foreign-owned manufacturers getting the huge break, that could be enough impetus to do something about it. That just looks bad. But that may not mean adding new credits.
 

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The tax credit would phase out, cut by half in the quarter following the quarter when the cap was reached. The second quarter after that, no Federal tax credit.
That‘s not how the phase-out works. When a manufacturer reaches 200k plugin vehicles sold, they keep the full tax credit for the remainder of that quarter AND the following quarter. Then they get two full quarters at 50%. ($3750). Then they get two more quarters at 25% ($1875).
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