I purchased a '17 Nissan Leaf. How do I maximize the tax credit ($7500 fed/$5000 state)? Should I adjust my withholdings to get all the money back? How does it work?

[megwhite75]

I would like to know if I need to adjust my withholdings so that I can get as much money back as possible.  I need to do this ASAP, I believe.

[megwhite75]

Forgive me if I wasn't clear.  I make enough and have my taxes set up so that I rarely "owe" or "receive" at the end of the year.  If I don't change this, then I believe the "tax credit" will be lost ... in other words, it is my understanding that Uncle Sam is not going to cut me a check - rather, I need to shift my W4 so that I will have tax liability at the end of the year.  Is this correct?

[Texas Roger]

Your withholding amount has no affect on the amount of electric vehicle credit you will be able to get. The credit is non refundable meaning you must have a tax liability for it to offset in order to get it. Your tax liability is your taxes owed. It is calculated from your taxable income which is determined by subtracting your exemptions and standard or itemized deductions from your adjusted gross income. If your tax liability is less than $7500 for federal, your vehicle credit will be limited by the amount of the tax liability. 

[SweetieJean]

<a rel="nofollow" target="_blank" href="https://www.edmunds.com/fuel-economy/the-ins-and-outs-of-electric-vehicle-tax-credits.html">https://...>

[Texas Roger]

If you are still confused about what is meant by tax liability, look at form 1040 line 44. It is labled "Tax" and that is the tax liability. The only way to increase the tax liability is to increase your income, reduce your adjustments to income, reduce exemptions or reduce deductions. Changing withholding will have no affect on it. You may want to reduce withholding to reduce the amount of refund since you would be getting all of your withholding back if your tax liability is less than the amount of your credit.

[SweetieJean]

For example, if you have a Traditional IRA, consider converting it to a Roth. This will generate additional taxable income. Or cash in some US Savings Bonds.

[megwhite75]

Thank you both for your responses.  Forgive me if I wasn't clear.  I make enough and have my taxes set up so that I rarely "owe" or "receive" at the end of the year.  If I don't change this, then I believe the "tax credit" will be lost ... in other words, it is my understanding that Uncle Sam is not going to cut me a check - rather, I need to shift my W4 so that I will have tax liability at the end of the year.  Is this correct?

[SweetieJean]

It's the same amount of money. You either get it throughout the year, or at the end.

[Texas Roger]

Please re-read my answer and comment and look at line 44 on a form 1040. The amount of withholding has NO affect on the amount of credit you will receive.

[megwhite75]

Thank you again.  I will do as you suggest, Texas Roger.  I think what I might be misunderstanding in all this is that I've been thinking about solar tax credits as analogous, and perhaps they're not?  Perhaps a better analogy is student loan credits?  (Which I've had the good fortune to never have, but I just had a friend set me straight)  A family member (who was dealing with the solar credits) had to adjust his W4 in order to maximize the credit, which is why I was making that assumption in this case.

[megwhite75]

Thank you both.  I will take some time to review your suggested materials and make sure I understand more completely.  If I have any more (and ideally more informed) questions, I won't hesitate to post.  I really appreciate it!

[Texas Roger]

Your friend was mistaken. The electric vehicle credit and the solar credit are all treated the same except that unused solar credit can be carried forward to the next tax year.

Perhaps looking further at the form 1040 would help you understand it. The "Tax" (tax liability) is on line 44. All the non refundable credits (which include the electric vehicle credit) are entered on lines 48-54. These credits cannot total more than the tax on line 44. So let's say the tax on line 44 is $5300. Then the total of all the credits on lines 48-54 cannot be more than $5300. If the only credit on this example tax return was the electric vehicle credit, then the credit is limited to $5300. The credit is then subtracted from the tax resulting in a total tax on line 63 of $0. As you can see from looking at the lines and the calculations, withholding has nothing to do with it. In this case the taxpayer would get all of the tax withheld during the year as a refund. But increasing or decreasing the withholding would only change the amount of refund. It would not change the amount of credit.