Electric vehicle tax credit- Do I stop withholding any federal tax for entire year?

[2022ev]

This is great. Thank you VolvoGirl. Appreciate this information. 

And thank you George and Citter-3 for your help. All the information shared here has cleared my misconceptions. 

[GeorgeDenseff]

The IRS is quite proud that Einstein once said the hardest thing in the world to understand is the taxes.  

Another way to understand non-refundable is that you have to have owed enough taxes to cover the credit.  If you only paid $5000 in taxes for 2021, then you would only get $5000 of the credit.  The rest would be rolled forward to the next year.  I have had people who bought a solar energy system and were told that they could pay for it with their tax refund.

  But they might be making $20,000 a year and paying so little taxes that they got little of none of the non-refundable credit.  In a few cases, they had signed a contract believing they would get about $20,000 back from taxes and had a balloon payment due for that amount the following April.   It is heartbreaking to have to explain that they will only get a credit for the amount of taxes that they would have actually paid.

[2022ev]

And here is a game changer news- 

https://www.cnet.com/roadshow/news/ev-tax-credit-house-[product key removed]dable-cash/

[GeorgeDenseff]

That is great news if it happens.  Could make changing to EV more feasible for lower-income taxpayers.  I would like to see the same thing happen with solar energy.

[2022ev]

Hi @GeorgeDenseff , Solar energy is already like that. Solar panels get 26% (Till end of Dec 2023, I think) tax credit which can be claimed over multiple years. 

[warrpopp]

It is my understanding that EV tax credits won't roll over into the next year

[JohnW152]

If you are suggesting that any portion of an electric vehicle that's unused on your tax year 2022 return can't be carried over to your 2023 return, you're correct -- it can't.

According to Line 23 in the Instructions for Form 8936 (01/2022):

"If you cannot use part of the personal portion of the credit because of the tax liability limit, the unused credit is lost. The unused personal portion of the credit cannot be carried back or forward to other tax years."

On the other hand, if you're suggesting that the EV tax credit won't continue to be allowed, in future tax years, that's not correct.  It will continue, although there will be significant changes.

Please see the TurboTax blog Inflation Reduction Act of 2022:  What it Means for You and Your Taxes for more information.

@warrpopp

[ff18]

Thank you @VolvoGirl  for your detailed explanation!

I live in Texas and Line 16 is empty, is there another line I can use to verify my tax owed? 

[Opus 17]

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@ff18 wrote:

Thank you @VolvoGirl  for your detailed explanation!

I live in Texas and Line 16 is empty, is there another line I can use to verify my tax owed? 

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For 2022, your income tax liability is shown on form 1040, line 22.  It is your income tax, plus certain other taxes from schedule 3, minus certain credits, but does not include self-employment tax (the solar credit does not reduce SE tax, only income tax.)

[EVmadness]

Hi 2022ev, 

I'm running into same confusion now in 2023. Can you verify this worked for you and you got your witholdings back for 2022? Thanks!

[kunal05]

Hey, Did you get any confirmation if tax withholding? will come into play and if advance tax is considered while calculating the 7.5 credit

[NCperson]

@kunal05 not sure I understand your question.   The $7500 will reduce Line 22 of your tax return (but not take that number below zero).  

The $7500 credit lowers your TAX LIABILITY.   

from your tax liability you subtract your W-2 withholdings.  the result is a refund or more due.

does that make sense ? 

[Critter-3]

The credit has NOTHING to do with your withholding.

Take a look at the Form 1040. (the 2023 form is going to be almost exactly the same)

https://www.irs.gov/pub/irs-pdf/f1040.pdf

the EV credit reduces your tax liability - that is line 22.  That means that to take full advantage of the $7500 tax credit, Line 22 must be at least $7500 BEFORE applying the credit.  Look at your 2022 tax return to see that amount.

Your withholding and any estimated payments are applied beginning on Line 25 so have no impact on the tax credit.  This is where folks get confused.  They think that line 34 has to be at least $7500 to get the credit, Not True. 

Line 22 is what you owe (your "tax liability"); Lines 25-34 is how you pay what you owe.