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yanetown
New Member

My husband & I just purchased a Tesla Model 3, how can we stay eligible for the Electric Vehicle credit. Could we get advice on that based on our income projected-150,000

Should I file a W4 to ensure there is enough withholdings?
Or how can I modify my W-2 to increase my withholdings?
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12 Replies

My husband & I just purchased a Tesla Model 3, how can we stay eligible for the Electric Vehicle credit. Could we get advice on that based on our income projected-150,000

You misunderstand.

 

To benefit from the full credit, your tax liability must be more than the credit.   Your tax liability (not counting self employment tax) is what you owe to government after all other taxes, credits and deductions.  It's shown on line 24  22 of your tax return.  For example, if you have $10,000 of withholding and you get a $1000 refund, your liability was $9000.  Likewise, if you had $10,000 of withholding and you owed an extra $1000, your liability was $11,000.  It's what the government gets to keep at the end of the filing process.

 

If your tax liability will be less than $7500, you would need to find some way of increasing your taxable income, like maybe changing from pre-tax to Roth retirement contributions.  But if your liability is already more than the credit, you don't need to do anything to get the credit refunded to you.  You certainly can change your W-4 to have less withheld, so you would get a bigger paycheck and a smaller refund at the end of the year.  But changing your W-4 doesn't change your tax liability, it only changes how and when you pay your taxes. 

My husband & I just purchased a Tesla Model 3, how can we stay eligible for the Electric Vehicle credit. Could we get advice on that based on our income projected-150,000

yanetown
New Member

My husband & I just purchased a Tesla Model 3, how can we stay eligible for the Electric Vehicle credit. Could we get advice on that based on our income projected-150,000

Wording on the credit states 

"The credit is nonrefundable, so you can't get back more on the credit than you owe in taxes."

To Clarify: How can I confirm that my husband and I owe more than $7,500. We usually get a refund but recently both started working so previous taxes wont indicate how much we will owe next year. 

My husband & I just purchased a Tesla Model 3, how can we stay eligible for the Electric Vehicle credit. Could we get advice on that based on our income projected-150,000

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 can use the whole credit.  It will reduce your income tax (but only to zero).  If your non refundable credits reduce your tax to 0 you will get back all the withholding and payments and any Refundable Credits. Unless you owe for something else like self employment tax or the 10% Early Withdrawal Penalty on IRA withdrawals.

 

This post kind of explains it.

https://ttlc.intuit.com/community/tax-credits-deductions/discussion/trying-to-understand-the-ev-tax-...

My husband & I just purchased a Tesla Model 3, how can we stay eligible for the Electric Vehicle credit. Could we get advice on that based on our income projected-150,000


@yanetown wrote:

Wording on the credit states 

"The credit is nonrefundable, so you can't get back more on the credit than you owe in taxes."

To Clarify: How can I confirm that my husband and I owe more than $7,500. We usually get a refund but recently both started working so previous taxes wont indicate how much we will owe next year. 


You can estimate your tax liability for 2023 using this calculator.  It uses 2022 rules, but they haven't changed very much.  Remember that your refund doesn't matter, what counts is what you owe to the IRS over the whole year (what the IRS gets to keep).

TaxCaster tax calculator

rjs
Level 15
Level 15

My husband & I just purchased a Tesla Model 3, how can we stay eligible for the Electric Vehicle credit. Could we get advice on that based on our income projected-150,000


@yanetown wrote:

Wording on the credit states 

"The credit is nonrefundable, so you can't get back more on the credit than you owe in taxes." 


You didn't say where you saw that wording. (Where is "on the credit"?) The wording is poor. The amount "you owe in taxes" does not mean how much you owe when you file your tax return. It means your tax liability, as explained in the other replies above. Your withholding has no effect on your tax liability.

 

My husband & I just purchased a Tesla Model 3, how can we stay eligible for the Electric Vehicle credit. Could we get advice on that based on our income projected-150,000

Your withholdings have nothing to do with capturing the credit 

 

simply. LINE 22 of Form 1040 needs to be at least $7500 prior to applying the credit to capture the full value of the credit 

 

look at your 2022 tax return as line 22 will be the same in 2023. 

does that make sense? 

My husband & I just purchased a Tesla Model 3, how can we stay eligible for the Electric Vehicle credit. Could we get advice on that based on our income projected-150,000

@Opus 17 - it’s line 22- not 24… you can’t use the tax credit to reduce the SE tax - just the income tax liability can be reduced 😀

 

ps and the line numbers will be the same in 2023 as in 2022 based on the draft 1040 that the IRS has posted 

My husband & I just purchased a Tesla Model 3, how can we stay eligible for the Electric Vehicle credit. Could we get advice on that based on our income projected-150,000


@NCperson wrote:

@Opus 17 - it’s line 22- not 24… you can’t use the tax credit to reduce the SE tax - just the income tax liability can be reduced 😀

 

ps and the line numbers will be the same in 2023 as in 2022 based on the draft 1040 that the IRS has posted 


I guess the 2022 credit is based on line 18 tax minus certain credits, so it is probably line 22.  That means that the EV credit can't offset any of the extra taxes on schedule 2, not just SE but everything else on that form. 

My husband & I just purchased a Tesla Model 3, how can we stay eligible for the Electric Vehicle credit. Could we get advice on that based on our income projected-150,000

also, this calculator uses 2023 rules: 

 

https://www.dinkytown.net/java/1040-tax-calculator.html

 

 

My husband & I just purchased a Tesla Model 3, how can we stay eligible for the Electric Vehicle credit. Could we get advice on that based on our income projected-150,000

Why is Self Employment tax liability not included in this $7500 credit?  

Does this mean that anyone that is self employed gets screwed out of this tax credit for buying an EV in early 2023?

Seems bogus to not allow those that are self employed and typically paid by someone without removing money for taxes to not get this benefit.

My husband & I just purchased a Tesla Model 3, how can we stay eligible for the Electric Vehicle credit. Could we get advice on that based on our income projected-150,000


@stevedelisle1966 wrote:

Why is Self Employment tax liability not included in this $7500 credit?  

Does this mean that anyone that is self employed gets screwed out of this tax credit for buying an EV in early 2023?

Seems bogus to not allow those that are self employed and typically paid by someone without removing money for taxes to not get this benefit.


Congress applied the credit to income tax only.

 

Remember that self-employment tax is the equivalent of social security and medicare tax.  Those taxes are applied to regular W-2 workers and their employers, and are not allowed as the basis for any credits or deductions.  Everyone who works, pays into the system.  If Amy, who works a regular job and owes $5000 in income tax, can't use the full EV credit even though she also pays $3000 in social security and medicare tax, then why would Betty, who is self-employed and pays $5000 of income tax and $3000 of SE tax, be able to apply the EV credit against the SE tax?

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