New Member

Do I still need to make estimated tax payments if nonrefundable (solar and PHEV) tax credits will reduce my underpayment to zero or less?

Most of my income is reported on W-2s and has withholding, but I have some freelance work that usually results in a modest tax bill. TurboTax is estimating that I should pay a few hundred dollars each quarter next year, which is correct were it not for two complicating factors:

1) I bought a new PHEV and installed a solar system on my roof, so my actual tax due after these nonrefundable credits will be virtually zero, and I will be getting a hefty refund on the withheld amounts.

2) I sold a chunk of stock early in the year that I’ve had for a very long time, so there will be a lot of tax due on that, but the PHEV and solar credits will more than offset it.

The IRS instructions specify that if your tax due will be less than $1000 after refundable credits, then you will not owe a penalty. But I can’t find anything anywhere about what happens with non-refundable credits (which the solar and PHEV credits are).

Do I still need to pay estimated tax (or update my W-4 to increase withholding) even though my liability will be almost zero, or do I still need to do that even though it’ll all come back to me because they’re nonrefundable tax credits? Or am I in the clear because my actual liability will be less than withholding?