I have an energy tax credit that keeps rolling over year after year as I never owe tax. How can I take advantage of this credit?

[desebill]

Precisely, how do I fill out the W4 to reduce or cancel my tax withholdings so I can use the credit to pay for the tax bill?

[Bsch4477]

Your tax withheld doesn’t affect your energy credit. You won’t receive it only if you have no tax liability before considering your tax withheld. 

[NCperson]

as stated, your withholding have nothing to do with this.

Look at line 18 less Line 19 on Form 1040. The credit  can only be used to reduce this number and it can not go below zero.  If Line 18 less Line 19 is zero, the credit can't be used and it has to be rolled over to a future year. 

[Critter-3]

Your only option will be to increase your income so you DO have a tax liability that the credit can negate.  Selling an asset like property or stock, working more,   taking a pension/IRA distribution and/or converting an IRA to a ROTH are some of the ways. 

[Opus 17]

It sounds like the problem is that you owe no actual tax.  This could be due to a lower income combined with high credits like the child tax credit or college tuition credits.  When your kids turn 17, or get out of college, those credits will go away and you will start to owe taxes that can be offset by the credit.

Otherwise, you need to increase your taxable income, so that you owe tax, that can be offset by the credit.

The simplest things I can think of involve investments.  

a. Change your work 401k contributions from pre-tax to after tax (Roth).  You will pay tax on the contributions now instead of taking a deduction (but the tax will be offset by the credit) and then you will pay no tax when you withdraw after retirement. Assuming your top tax rate is 22% or 24%, then for every $1000 of credit you need to cover, increase your taxable income by $4000-$4500.

b. If you contribute to a private tax-deductible IRA instead of a work plan, change your contributions to a Roth IRA.

c. If you have a taxable broker account, you could sell any investments with long term capital gains to realize (cash out) those gains.  For long term capital gains at 15% tax, you would realize $6666 in gains for every $1000 of EV credit you need to use up.  Since the gains will end up being tax free, you can re-invest them in your account and that will increase your basis and reduce your taxable gains on future sales.

d. If you have an existing traditional (pre-tax) IRA, you can perform a Roth IRA conversion. This moves some money from a traditional IRA to a Roth IRA. You pay income tax now on the converted amount (which is offset by the credit) and then you won't pay tax when you retire.  If you have a workplace retirement account (401k, 403b, etc.), you may be able to perform a Roth conversion inside the work plan, to convert some money from a pre-tax 401k to a designated Roth account.  This is not an IRA becasue the money is still in the workplace plan, just designated differently.  The tax effects are the same.  Depending on your tax bracket, you would convert $4000-$6666 per $1000 of EV credit you need to use up.  (Not all workplace plans allow in-plan Roth conversions, you will have to ask your plan.)