Purchasing solar panels. I over pay and usually get a refund (last year $8k). Will I not benefit from the 30% tax credit. How does it work in my case?

[pmcclellan1979]

Unsure how the benefit of the 30% works if I typically get a refund.

[VolvoGirl]

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.  So as long as Line 22 is more than the credit, you'll get the whole credit back.  I don't know the details of how the solar credit works but I think if you can't use it all it carries over to the next year.  

[NCperson]

@pmcclellan1979 and in 2023, the line numbers are going to exactly the same. So it will be Line 22 (prior to application of the tax credit) that remains the critical line.  Line 22 can't be reduced to below zero, which means any solar credit not used would be carried over to the next year. 

[Critter-3 · Accepted solution]

The credit has NOTHING to do with your withholding.

Take a look at the Form 1040. (the 2023 form is going to be almost exactly the same)

https://www.irs.gov/pub/irs-pdf/f1040.pdf

the solar credit reduces your tax liability - that is line 22.  That means that to take full advantage of the tax credit, Line 22 must be at least the amount of the credit ... any unused credit can be carried forward. 

Your withholding and any estimated payments are applied beginning on Line 25 so have no impact on the tax credit.  This is where folks get confused.  They think that line 34 has to be at least as much as the credit to get the credit, Not True. 

Line 22 is what you owe (your "tax liability"); Lines 25-34 is how you pay what you owe... usually the withholdings.  So if the credit brings your tax liability down to zero (and you have no other taxes owed)  then you will get all the withholding paid as a refund.

[Opus 17]

The credit can't be larger than your tax liability.  Your tax liability is what the government keeps at the end of the day.  If you had $15,000 of withholding and got an $8000 refund, your liability was $7000.  If you had $9000 of withholding and got an $8000 refund, your liability was $1000.  

The credit can't be larger than your liability.  Any leftover credit will be carried forward to next year.   

[NCperson]

@Critter-3 if I could give two "thumbs up", I would!