How is the federal tax credit on EV's applied?
My current vehicle is on it's death bed and I am trying to do my research before purchasing a new all electric vehicle and one of my biggest
considerations is the utilization of the federal tax credit (since EV's tend to be more expensive than their ICE counterparts). According to the US Dept. of Energy website, the federal tax credit is still in place, and according to the US fuel economy website the vehicle I am interested in purchasing meets the qualifications for the full ,500 tax credit and the manufacturer has not yet met the 200,000 quota. I am trying to learn how this credit is applied, and I found this written by a user in another forum
What is the total amount of federal income tax you and your wife are
liable for to the IRS each year? (Don't subtract any amounts your
employers withhold for you.) What's your tax liability before you pay
the IRS even one penny? THAT's the amount that will be reduced by
,500. And it can result in a bigger refund IF you've had more than
that result withheld.
Line 7 on my 1040 says my total wages (filing jointly with my wife) were ,872 last year, line 39 says my total tax was ,384, and line 40 says my total tax withheld was ,902. Is the total tax figure the amount that the credit is applied toward? If there any other important considerations I have missed or have gotten incorrect please let me know.
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What is the total amount of federal income tax you and your wife are
liable for to the IRS each year? (Don't subtract any amounts your
employers withhold for you.) What's your tax liability before you pay
the IRS even one penny? THAT's the amount that will be reduced by
,500. And it can result in a bigger refund IF you've had more than
that result withheld.
Line 7 on my 1040 says my total wages (filing jointly with my wife)
were ,872 last year, line 39 says my total tax was ,384, and
line 40 says my total tax withheld was ,902. Is the total tax figure
the amount that the credit is applied toward? If there any other
important considerations I have missed or have gotten incorrect please
let me know.
The total tax figure is the one they are referring to. This is what your taxes are. This is the number that when compared with the amount withheld that determines if you get a refund, if your under-withheld, or if you made the safe harbor.
Some tax credits are refundable. Which means if the the amount on line 39 minus the tax credit is less than zero, you still get the entire credit. For credits that aren't refundable if line 39 minus the credit is less than zero, then you will only get a partial credit. I believe that the credit you are interested is non-refundable.
Using your numbers:
max(total_tax - non-refundable_credit,0) - withholding
max(11384 - 7500, 0) - 9902
3884 -9902 = -6018 (a refund)
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