Is there a penalty for underpayment of taxes from your paychecks during the year?
It doesn't matter how much you owe on your tax return when you file it. The issue is whether you have enough taxable income after subtracting your deductions and exemptions from your adjusted gross income to result in a tax liability of $7500 or more to offset the non refundable credit. You don't need to owe any of it.
For example, a single taxpayer with no dependents would need around $47,000 of income (after subtracting the standard deduction and personal exemption) to have a tax liability of around $7500 in order to offset the $7500 tax credit. If you withheld $7500 of federal income tax during the year, you would still qualify for the $7500 of credit and get it as a refund.
You can use the tax table to determine how much income would be needed for other filing statuses: https://www.irs.gov/pub/irs-pdf/i1040tt.pdf
It doesn't matter how much you owe on your tax return when you file it. The issue is whether you have enough taxable income after subtracting your deductions and exemptions from your adjusted gross income to result in a tax liability of $7500 or more to offset the non refundable credit. You don't need to owe any of it.
For example, a single taxpayer with no dependents would need around $47,000 of income (after subtracting the standard deduction and personal exemption) to have a tax liability of around $7500 in order to offset the $7500 tax credit. If you withheld $7500 of federal income tax during the year, you would still qualify for the $7500 of credit and get it as a refund.
You can use the tax table to determine how much income would be needed for other filing statuses: https://www.irs.gov/pub/irs-pdf/i1040tt.pdf
Thank you for the answer. Since the standard deduction will change for 2018, how is this question answered for 2018 tax year?
Using the taxpayer income example listed above of $47,000, If this taxpayer had $10,000 withheld but only owed $6,000 ($4k overpayment), what would the final return be when you factor in the Electric Vehicle Tax Credit? Is it correct to assume that you would receive the $7,500 + $4,000? Or would it be calculated as $6,000 + $4,000? Thanks in advance for any insight and clarification.
The amount of electric vehicle tax credit that a taxpayer can get is limited by the amount of tax liability. This is because it is a non refundable credit. If the tax liability was $6000 and the taxpayer had $10,000 withheld, he or she would get back the $4000 of overpayment plus $6000 of electric vehicle tax credit. For the taxpayer to get the full $7500 of electric vehicle tax credit, the tax liability must be at least $7500. For a single taxpayer, the taxable income on a 2018 tax return after subtracting the standard deduction or itemized deductions must be near $52,000 for the tax liability to be about $7500.
CORRECTION: If the tax liability was $6000 and the taxpayer had $10,000 withheld, he or she would get back the full $10,000 of tax withheld and $6000 of the electric vehicle tax credit would offset (pay) the tax liability. The taxpayer would not get the additional $1500 of electric vehicle tax credit because the tax liability was not high enough to offset the rest.
Consider converting a Traditional IRA to a Roth. Doing so however, may create state taxes due.
TexasRoger, thank you very much for your time and effort! Your answer is exactly the detail I was looking for!
How about married filing jointly with 2 children credit? 2018 tables been out? Texas Roger
@Muthu Subramanian This is a year old thread about the EV credit for an electric vehicle. Is that what your question is about? If not, please start your own new thread with your own question.
Yes, I am talking tax credit and 2018 tax tables
If your 2 children are under age 17 at year end 2018, they would each qualify for $2000 of child tax credit which is subtracted from your tax liability before the electric vehicle credit can be subtracted. If you had no other credits, you would need $11,500 of tax liability to qualify for the full $7500 of electric vehicle credit. A couple filing married filing jointly would need $113,186 of adjusted gross income to have $11,500 of tax liability and qualify for the full $7500 of electric vehicle credit.
@Texas Roger you are just awesome. so child tax credit has increased from 1000 to 2000?, also this 2018 chart table been published or you have insider information?
@Texas Roger you are just awesome. so child tax credit has increased from 1000 to 2000?, also this 2018 chart table been published or you have insider information?
Yes the maximum child tax credit for a child under age 17 has been increased to $2000. The standard deduction for MFJ has increased to $24,000 but there are no longer any deductions for personal or dependency exemptions. Here are some links for 2018 tax information:
<a rel="nofollow" target="_blank" href="https://ttlc.intuit.com/questions/4337493-what-are-the-federal-tax-rates-for-2018">https://ttlc.intuit.com/questions/4337493-what-are-the-federal-tax-rates-for-2018</a>
<a rel="nofollow" target="_blank" href="https://ttlc.intuit.com/questions/4482873-which-federal-tax-deductions-have-been-suspended-by-tax-reform">https://ttlc.intuit.com/questions/4482873-which-federal-tax-deductions-have-been-suspended-by-tax-reform</a>
<a rel="nofollow" target="_blank" href="https://turbotax.intuit.com/tax-tips/irs-tax-return/2017-tax-reform-legislation-what-you-should-know/L96aFuPhc">https://turbotax.intuit.com/tax-tips/irs-tax-return/2017-tax-reform-legislation-what-you-should-know/L96aFuPhc</a>
Wow, cool, i was going to ask about exceptions but you answered it already, so it becomes simple now. get your AGI to this much, take standard deduction and apply these 3 credits and you will get 7500 back. now have to see how to get to 113 number..there is no way one can use itemized deductions, right? property tax caps at 10K, mortgage interest cant go beyond 24K
Your total tax liability with that amount of adjusted gross income would be $11,500 and it would be offset by the $4000 of child tax credit and $7500 of electric vehicle credit. How much you get back as a refund or owe would depend on how much tax was withheld during the year. If your itemized deductions were more than the standard deduction, it would increase the amount of adjusted gross income you would need to qualify for the full amount of credits. You are correct that the total of property tax and state income tax or sales tax deduction is limited to $10,000. There is no specific limit on mortgage interest deduction but there are limits on how much mortgage debt you can deduct the interest on.
Hi @Texas Roger
Thanks for all your advice on this thread! I have been researching and reading lots of threads but still feel no closer to understanding if I should take any action to maximize my usage of the federal tax credit.
In 2018 I will earn about $85,000 and after checking the table you linked see that my federal tax liability as a single filer is therefore $17,045. In order to use all the federal tax credit, would you advise that I change my current filing? My W-4 is currently set to single with 2 personal allowances.
Thank you,
C
Your federal withholding has nothing to do with your tax liability. Your tax liability is determined by subtracting your standard deduction ($12,000 for single) from your adjusted gross income ($85,000 if you have no adjustments to lower you earnings) and calculating how much tax you are liable for on the remaining $73,000 of taxable income. According to my calculations using the 2018 marginal tax rates, your tax liability will be $11,046. Since the tax liability is more than the $7500 of electric vehicle credit, you would qualify for the entire credit. Your withholding as determined by your W-4 will affect how much refund you get but it will not affect your qualification for the credit.
Some can gain a better understanding of this by looking at form 1040 to see how this flows. Here is a link to the 2017 form. The 2018 form will be different but the flow is the same. <a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/f1040.pdf">https://www.irs.gov/pub/irs-pdf/f1040.pdf</a>
Adjusted gross income is on line 38 of the 2017 form 1040. The standard or itemized deductions on line 40 are subtracted from adjusted gross income. The result is taxable income on line 43. (There are no personal exemptions on line 42 in 2018.) The tax tables or other calculations determine the amount of tax on line 44.
Non-refundable credits (meaning you must have tax to offset them in order to get them) are entered on lines 48-54. The electric vehicle credit would be entered on line 54. If there are no other credits and if the electric vehicle credit on line 54 is less than the tax on line 44, you are eligible for the entire electric vehicle credit to reduce the taxes. If the total of credits on lines 48-54 is more than the tax on line 44, the amount of credit you can get is limited by the tax on line 44.
Additions and subtractions on the remaining form determine how much refund you will get or taxes you will owe. One of those subtractions is the tax withholding (which your employer determines by the number of W-4 allowances you claim) entered on line 64 as a payment that is subtracted from the remaining tax owed. So tax withholding has no affect on how much credit you qualify for but it will affect the amount of refund or tax you owe when you file your tax return.
@Texas Roger Hi, is there a way you could tell me the maximum i could get as a refund considering i have a credit of 11.5k, (ev credit + 2 kids), looks like i would loose some of my child tax credit if i have $113,186 of adjusted gross income. has this changed?
@Texas Roger Hi, is there a way you could tell me the maximum i could get as a refund considering i have a credit of 11.5k, (ev credit + 2 kids), looks like i would loose some of my child tax credit if i have $113,186 of adjusted gross income. has this changed?
Assuming your AGI is all ordinary income (no self employment, no long term capital gains or qualified dividends), your kids are both under age 17 at year end, and you are filing MFJ, your tax liability will be $11,498 which is virtually identical to the total of your non refundable credits. Your credits will pay your tax liability and you will get all your federal tax withholding as a refund.
@Texas Roger i am at 90K from work and planning 20K of RothIRA conversion but my tax calc is bringing to 9.5K refund and not 11.5,it says i am missing out on child tax credit, thats why was wondering. I am at net tax for 7.8K
@Texas Roger thanks a lot for being patient and so knowledgeable on this.
Your child tax credit would be applied before your EV credit so you might be losing EV credit but you should not be losing child tax credit if your tax liability is less than $11,500 before credits. Please ignore your refund. What is your tax liability before credits are applied?
Also please understand that TurboTax 2018 is not yet fully functional. Neither the electric vehicle credit section or the child tax credit section is ready.yet and so any attempt to enter those credits may not work. If you are trying to do it on 2017 software, the child tax credit amounts, standard deductions, personal and dependent exemptions, and tax tables are all different in 2018