If I paid $7500 federal taxes through payroll deductions in 2023, will the non-refundable $7500 EV tax credit result in a $7500 refund when I file taxes in 2024?

[aclsmb1smbacl]

I'm just trying to confirm that although the $7500 EV tax credit is "non-refundable", if I already paid the $7500 in federal tax through payroll deductions (and that is my total federal tax liability for 2023), I would actually get a $7500 refund since my 2023 federal tax liability would be reduced to 0...which I assume means that all the federal tax I paid ($7500) throughout the year via payroll deductions would be returned to me in a tax refund, is that correct? Or am I not understanding how the non-refundable EV tax credit works when I file in 2024?  Thank you in advance for any information you can provide.

[DoninGA]

The simple answer is if the EV credit reduces your tax liability to zero, then your federal tax refund will include all the tax payments you made for the year.

If your tax liability is less than the EV credit and the credit reduces your lability to zero the remaining EV credit is not carried forward to the next tax year.

[rjs]

The amount of tax withheld from your pay has nothing to do with your tax liability or with how much of the EV credit you can get.

The amount you owe is not your "tax liability." Your tax liability is the total tax on your income for the year, before applying any credits, withholding, or other payments. On your 2022 Form 1040 the total tax liability before nonrefundable credits is on line 18. The amount of your refund and the amount of your withholding will not affect how much of the EV credit you can get. The EV credit is a nonrefundable credit. Nonrefundable credits are applied to your total tax liability for the year, not to the amount that you owe when you file your tax return.

The nonrefundable credits are not applied in any particular order. They are all added together. The total nonrefundable credits, including the EV credit, are on Form 1040 line 21. On line 22 the total nonrefundable credits on line 21 are subtracted from the total tax liability on line 18, but the result cannot be less than zero. If the total nonrefundable credits on line 21 are more than the total tax liability on line 18, then you are not able to use all the nonrefundable credits, and line 22 will be zero. But it's not any one particular credit that is reduced. It's the total of all the credits that is limited.

If Form 1040 line 22 is not zero, you are using the full amount of all your nonrefundable credits.

Withholding is subtracted later, on Form 1040 line 25a. It does not affect the amount of nonrefundable credits that you can use on line 22.

[aclsmb]

Wow, thank you. I think I need to hire a tax advisor…but I do think I follow as I pulled up my 2022,1040 so I could directly follow your reference. So if you could help me just a little more…if I follow…if my line 18 equals my line 21 (which includes the $7500 non refundable EV credit)…is it correct this means my total tax is zero.  And if so then…if my 25a Federal income tax withheld from Forms W-2 = $7500 (and I have no other payments in 25b-d and 26-32) then I should get a refund of $7500? Thank you again!

[rjs]

Yes, that's correct, provided that Form 1040 line 23 is blank or zero, so that line 24 is also zero.

[VolvoGirl]

The EV credit only reduces the tax liability on 1040 line 22 to zero.  Then you will get back all your withholding and any refundable credits. But it doesn't reduce any other taxes on line 23 like self employment tax or a 10% early withdrawal penalty on IRAs.

If the 7500 is more than line 22 you don't get to carry the rest over.