New W-4 and expected nonrefundable credits

[writechantelle]

I expect to have to buy a furnace and AC over the next year. I'm hoping to find one that qualifies for the tax credit, but I understand it's "nonrefundable" - which if I understand correctly means I need to make sure that I owe taxes before the credit. Otherwise it's lost, not refunded.

In the past I could have changed the W-4, but now it's unclear to me where I put the expected credit. The IRS worksheet seems to suggest that I put it under Step 3: Dependents? Is that right? Should I put the expected amount of the credit...or the amount I expect to spend on the AC/Furnace themselves?

[AmeliesUncle · Accepted solution]

---

@writechantelle wrote:

which if I understand correctly means I need to make sure that I owe taxes before the credit.

In the past I could have changed the W-4

---

"Owe taxes before the credit" does NOT mean that you would actually owe the IRS money (the opposite of a refund).  It means that you have income taxes NOT including your withholding on your W-4.

Let's say your tax return shows $5000 of income tax, but you had $6000 of income taxes withheld from your pay (resulting in a $1000 refund).  The credit is based on the $5000 of income tax BEFORE you factor in the incomes taxes withheld from your pay.  So in that scenario, a $500 tax credit would result increase your $1000 refund and you would get a $1500 refund.

[ColeenD3]

Here is a list of non-refundable credits. If you have any other credit on this list, it will affect your energy credit.

See Schedule 3 for the list.

Schedule 3