If I change my W-4 allowances, will it maximize solar tax credit?

[vue_s]

Yearly gross 80k, spouse not working, no other dependants. We're getting solar panels placed on our roof and the tax credit will be around $7500

[Opus 17]

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.

[vue_s]

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.

[Opus 17]

What is line 63 of your 2016 form 1040?

[vue_s]

1040a line 39 around 9500.

[Opus 17]

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.)

[vue_s]

Thank you! That makes sense!

[alajayaa2]

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..?

[Opus 17]

Yes, the unused credit carries forward.

[alexiusxerxes]

>>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?

[CSC9591]

I have the same question about raising my W4 withholding allowances to reduce the federal tax I pay. I assume this is okay.

[Opus 17]

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.  

[Wyldaisy]

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

[Andernat]

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

[Critter-3]

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.