Changing W-4 to use Federal tax credits

[svcrawford23]

I am about to purchase solar for our home. Recently, each year we owe $1,000 or less in taxes at the end of the year. I am a disabled veteran and don't work however my wife works and claims 0 on w-4 to help keep the taxes we owe less at the end of the year. With the solar federal tax credit for solar, can my wife change her w-4 so that fewer taxes are taken out each paycheck so that we owe more at the end of the year and use the federal tax credit to absorb the increase in taxes owed? 

[MinhT1]

You could change the W-4 to have less tax withheld. But I would not advise that.

Your solar credit in 2022 will be applied against your tax liability, and if you had tax withheld, you will receive a refund. You do not have to have tax due to apply the solar credit.

If you change the W-4 and for some unforeseen reason, you do not get the solar credit (for example the system cannot be placed in service before year end), you could be liable for a penalty for underpayment.

[svcrawford23]

Thank you. If the solar is ready by 2023 (say installed tomorrow and ready to go in a month), I'm assuming her paying less in taxes through her paycheck will be fine as long as the solar is installed and ready before the end of the year? In times like these, more money in the paycheck would help greatly and if the federal credit will offset, that would be a blessing?  I'm assuming you advised against it just in case the solar wasn't installed in time but if it was, we would be ok?

[ThomasM125 · Accepted solution]

The solar electric property tax credit is 26% of the cost of qualifying expenses in 2022, up to the amount of your tax liability for the year. Any unused credit can by carried forward to the next year. Since the credit is substantial, you should be OK adjusting your spouse's W-4 form to have less tax withheld in 2022 if you anticipate the equipment to be installed by the end of the year.