Changing your W-4 will not change the amount of the credit that is paid this year. The limit on the credit is not your tax refund, but your tax liability. Your tax liability is the total amount of tax you owe after considering income, deductions, and other credits. For example, if you had $5000 of withholding and get a $500 refund, your tax liability is $4500. Your liability is still $4500 even if you had $6000 of withholding and get a larger refund, or if you had less withholding and owed a payment. Your tax liability for 2016 is shown on line 63 of form 1040.
If your liability is less than the credit, you will get the credit up to your liability in 2017, with the rest carried over to 2018. So you will get it eventually.
Adjusting your W-4 only changes the timing of when you get your money. If you add allowances, you will get more money in each paycheck and a smaller refund at the end of the year. But it doesn't change the amount of credit you would be able to receive this year.
So how do I make sure my solar tax credit doesn't go to the garbage can? We got a small check back from the IRS for our 2016 taxes and didn't owe anything. If I won't owe anything again for 2017 and get a refund, then it doesn't make sense for us to buy solar instead of leasing.
Your tax **liability** was $9500. That's what you owed to the IRS. The fact that you paid $10,000 in advance and got a $500 refund (for example) does not change the fact that your tax owed was $9500.
As long as your income and tax situation is similar for 2017 and your tax liability is more than $7500, you would get the full credit refunded as part of your 2017 tax refund, even if you also had $10,000 withheld again. (In that case you would get back $8000.)
If my solar refund tax credit is 6000 and my federal tax is 1000 for 2018 and the amount is 1000 for 2019 will they pay remaining 4000 in later years..?
>>Your tax **liability** was $9500. That's what you owed to the IRS. The fact that you paid $10,000 in advance and got a $500 refund (for example) does not change the fact that your tax owed was $9500.
For this situation, is it okay to then raise your W4 withholding to essentially get the credit throughout the year, rather than waiting until tax time?
I have the same question about raising my W4 withholding allowances to reduce the federal tax I pay. I assume this is okay.
Changing allowances doesn’t change the overall tax you owe, it just changes the timing of when you pay. For every one allowance you add to your W-4, you will get about $20 per week or $80 per month in take home pay, and a $1000 smaller tax refund.
This is no problem unless you end up being under-withheld and owing tax at the end of the year. If you owe more than $1000 you will also be charged a penalty and interest for late or under-payment.
Hi....Is the answer Opus 17 provided two years ago still applicable to solar tax credits for installs done by 12.31.19? My tax liabilty will exceed the 30% credit I will be receiving. Typically, i try to set my withholdings to be a small refund. I really do not want to mess with my 2019 witholdings if I do not have to. If a small refund will not impact my eligibility for the 30% credit (my tax liability will exceed that)...I would rather just leave my witholdings alone and get the credit/refund when I file my 2019 taxes by April 2020. Thanks
Same type of question. My liability is 15k already paid 9k ish and I and getting solar installed later in the year. If adjust my withholding similar to the dependent 2k credit to compensate for the know credit of 18k will IRS refund some of that already paid liability? I usually get a couple hundred back each year in refund but not had to pay at year end for years. Hope that makes sense
As already mentioned in this post ... if you overpay your tax liability with withholdings & credits then you get the excess back ... this is known as an income tax REFUND. The tax return is simply one long math problem ... simply put ...
Total Income - (adjustments + exemptions + deductions ) = taxable income x tax rate = federal Tax liability
Federal Tax liability - nonrefundable credits (like the solar credit) = line 22 on the form 1040
Line 22 + other taxes (like SE taxes) = total tax liability - payments (withholdings & refundable credits) = refund or balance due
What you have withheld from your paycheck is only taken into consideration at the very end of this calculation. You can adjust what you have withheld if you have a non refundable credit come into play however if you do then make sure to adjust it back the next tax year or you will find yourself owing on the next year's return. If I were you I would not change anything and just enjoy the extra large refund on this return.
In 2023, I am installing a solar system that has $4,300 in Federal Investment Tax Credit (ITC). I expect a similar tax situation in 2023 as I had in 2021.
I was recently told in order to claim the full $4,300 credit, my 2023 1040 form must show I have no refund and an underpayment of $4,300 (i.e. I paid less tax than was due by $4,300). This would mean to get the credit, I'd need to adjust my withholdings since I overpaid by $5,000 in 2021 on total federal taxes owed of $36,906.
Based on what I am reading in this discussion the above is incorrect. Basically what I am understanding from this discussion is that in 2023 if I have a federal tax owed of $36,906 and $5,000 refund I'd still get the full $4,300 in Federal Investment Tax Credit (ITC) since my federal taxes owed are more than $4,300. I don't need to worry about adjusting my withholding in order to get the Federal Investment Tax Credit (ITC).
Is my understanding correct?
@rand90210....
look at form 1040, specifically lines 18 and 20.... it's the same line numbers for 2021 and 2022 to use as the example. the solar credit goes on Line 20.
the solar credit you are able to take on your taxes is the lower of Line 18 or Line 20
if Line 20 is lower than Line 18, you can take the whole credit in one year.
if Line 18 is lower than Line 20, the remainder gets carried over to the following year. (you'll see that Line 22 can't be less than zero)
it has nothing to do with your withholdings.
suggest making a copy of your 2021 form 1040 and manually make the adjustments noted above and you'll see what happens to your refund / amount due..... also note nothing in the 'payments' section changes.
your understanding in the last paragraph ("based on what I am reading.....) of your post is accurate!
So if my federal tax total/I owe $10,000 in taxes for 2024, and I have a $3,200 tax credit from solar installed in 2024, I will get the $3,200 back effectively as a refund when I file my 2024 taxes, even though I usually also receive a ~$100 refund (from overpayment) when I file? The fact that I've already paid my tax doesn't matter, I'll get the credit/refund for the $3,200 as long as my federal tax total that I owe is more than that?
I've been told that I have to adjust my withholdings to be able to get the tax credit from the solar installer (and turbo tax answers like this one: https://ttlc.intuit.com/community/after-you-file/discussion/full-solar-tax-cr[product key removed]ed-by-turbotax-and-is-now-showing-a-sizeable-refund-i-thought-it/00/2208424), but from this thread that doesn't appear to be correct.
Yes. The credit will reduce the tax on your return so you will get back more refund. So if your tax on line 22 is 10,000 and you have a 3,200 credit the tax will be $6,800. Then you will get more of your withholding back.
Don't change your withholding. It's not whether you get a refund or a tax due. And the withholding and estimated payments doesn't matter. It's if you have a tax liability on your income. Look at your 1040 line 22 for total tax. So as long as Line 22 is more than the credit, you'll get the whole credit.
The Solar Credit is a nonrefundable credit. It goes on Schedule 3 line 5a which goes to 1040 line 20. It can only reduce the tax liability on 1040 line 22 to zero. The rest will carryover to next year. 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.
I think it's the "nonrefundable credit" part that's throwing me (and others) - how do we get that credit back? Is it not just via the same mechanisms that we get our overpayment refunds? If it's reducing our overall tax liability (so for me for 2024, that would make my tax liability $6,800), but I still paid $10k+ in 2024, my refund would then be $3,200 (+whatever else I overpaid via my paycheck)?
Yes that's how it works. You will get it back because the tax went down so you get back more of your withholding. If you don't have enough tax to use up the credit then the difference will carryover to the next year's return.
For a Refundable credit, even if it is more than the tax on your return you can actually get the whole amount added on to your refund.
How are you paying the "....paid $10k+ in 2024"? I thought the 10,000 was your tax. Are you sending in estimated quarterly payments?