EV Tax Credit

[fernandinho1991]

Hello: 

I bought a 7500 tax credit eligible EV this year. The problem is, I usually get a refund every year. Can I change my withholdings from work so i get less taxes held so I actually owe taxes at the end of year in order to take advantage of the credit? Am I thinking of this correctly?  Thanks in advance. 

[VolvoGirl]

No.  It's not whether you get a refund or tax due. And the withholding 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 $7500 (before applying the credit), you'll get the whole credit back.

The EV credit only reduces the tax liability on 1040 line 22 to zero.  Then you will get back all your withholding.  But it doesn't reduce any other taxes on line 23.  

[fernandinho1991]

May be I am not understanding this correctly. But If I ask my employer to take out less Federal income income taxes so I actually have a liability at the end of the year, would that qualify me using the EV non-refundable credit? 

[Critter-3]

Ok ... you are not thinking about this clearly ... what you have withheld has NOTHING to do with your ability to use the EV credit.  To use the credit you must have a tax liability that can be negated by the credit.  If your tax liability is reduced to zero then you will get all of the withholding back as a refund.  Reducing the amount you have withheld during the year will simply reduce the amount you can get refunded on the return.  

[fernandinho1991]

This makes sense. 

[VolvoGirl]

No.  The Tax liability is the tax calculated on your Adjusted Gross Income.  Not the Tax due at the end of your return.   It's the Tax on all your income before your withholding is taken out.  The EV credit only reduces the TAX to zero.  Then you will get all your withholding back.  

Look at  your 2022 tax return.  What is on line 22?  Subtract 7,500 from line 22 (but only to zero) and then redo the math all the way down to the refund or tax due.  

[fernandinho1991]

So if I usually get a refund, and if I dont change my witholdings, then I theoretically get a bigger refund since I will owe 7500 less based on taxes owed from AGI?

[VolvoGirl]

YES!

[fernandinho1991]

So technically wouldnt be wrong, to take out less taxes from paycheck and not wait till tax season to get the money back ? 

[Critter-3]

That is a valid method to keep more of your money in your pocket during the year HOWEVER you need to make sure to put things back the next year so you don't accidentally underwithhold ... this is why I usually don't recommend making the change since you have to remember to make the change back later.