For electric vehicle tax credit, are my paycheck withholdings considered a tax liability?

[a_sal6]

Meaning, if $10k were withheld from my paycheck during the year, and I end up owing $500 at the end of the year, can I claim the full %7500, or only $500 to bring my tax bill to $0?

[Vanessa A]

You could still claim the full $7,500.  Your tax liability is the amount you are liable for taxes based on your taxable income for the year.  The fact that you already had money withheld from your paychecks does not change your tax liability, it only changes the amount you have left to pay when you file your return. 

[a_sal6]

Thank you for confirming! @Vanessa A 

[Affordabletaxes2021]

The tax liability after applying payment from payroll withdrawals can be eliminated with the electronic credit but won’t create a refund. It’s a non-refundable credit. 

[TomD8]

To put @Affordabletaxes2021's correct answer another way, a non-refundable credit can reduce your tax liability to 0 (zero), however it cannot result in a refund.

For example, if you had a $7500 credit, but your tax liability was only $5,000, you'd receive a $5,000 credit.  You would not receive a $5,000 credit and a $2,500 refund.

[a_sal6]

@Affordabletaxes2021 @TomD8  Thank you both for your input. Next month, I am planning to purchase a PHEV that qualifies for the full $7500. So I am planning for next year's taxes and want to ensure that I get the entire $7500 credit. So to put things in perspective to my tax situation:

- Usually, our tax liability is around $16-17k for the year. Next year maybe around $20k

- Payroll deduction usually cover 90-95% of tax liability.

- So for the past two years we ended up paying $1,000 - $2000 by April 15 to bring our tax liability to $0.

So if I understand your explanations correctly, assuming our tax situation remains the same:

- Tax liability around $20k

- $18k deducted through payroll and we have to pay $2000 to bring tax liability to $0.

- Then, I will be able to claim the entire $7,5000 credit. So we would I $5,500 tax refund ($7,500 credit - $2000 remaining tax liability). Correct?

Thanks again!

[TomD8]

@a_sal6 

You'll see how this works if you look at Page 2 of Form 1040.  https://www.irs.gov/pub/irs-pdf/f1040.pdf

Your PHEV credit will flow to Line 20.

It will be calculated into your Total Tax on Line 24.

Your tax payments and refundable credits will appear on Line 33.

Then Line 33 will be subtracted from Line 24 to give you your refund amount.