How to maximize my ev tax credit

[4everinbeta]

I'm completely confused by how to take advantage of the ev tax credit for the new 2022 ev I just purchased. I typically get a refund and last year received a $6k refund. I understand this is generally not considered good practice by financial planners but I prefer not to owe the government come April. 🙂 However, if my understanding is correct, this means that I would not get any of my credit when I file since it is not refundable. So, I have tried to adjust the deduction on my w4 form field 4b to compensate for the refund I expect in addition to the tax credit and it has had very little effect on my paychecks as I would have expected.

I have read the previous answers and am still confused by they mainly seem to answer what NOT to do but not what TO do. But I am very ignorant to taxes and hope that you all could help me understand my options better.

[Critter-3]

What you typically get for a refund is immaterial for the discussion/use of the EV credit  and you don't need to change anything on your withholding for this tax year and you really should not make any withholding changes.   What you do need to do is have enough TAX LIABILITY  to use the EV credit in full since any unused credit is lost.  

So start by looking at the 2021 form 1040 line 18 ... that is the amount on the 2021 return that could be negated by the 2021 credit if you had bought in 2021.   Estimate how much tax you will owe for 2022  and if the EV credit is higher than the line 18 tax bill then you need to increase your tax bill to fully use it up and not lose any of it.   Ways to increase income is to earn more, sell stock at a profit, take a taxable  IRA/retirement distribution  or  do a ROTH IRA conversion, etc. 

[Mike9241]

Getting a refund has nothing to do with utilizing the EV credit.   what you need is a tax liability after certain refundable credits as high as the EV credit. any EV credit not used in the year acquired is lost. the EV credit utilized  

as a reference using the 2021 1040 and related forms that amount would be line 18 from form 1040 less the following credits on schedule 3 -  lines 1 through 4, 6d, 6e, and 6I; and Form 5695, line 30.

example: assume your tax liability determined as above is $7,000 your EV credit is $7,500 your withholding is $10,000. the EV credit reduces your tax liability to $0 so you get a $10,000 refund because your withholding exceeds your net tax liability. $500 of the EV credit is lost

[Opus 17 · Accepted solution]

Your tax liability is only indirectly related to your refund.  Your tax liability is what you actually pay to the IRS net after all payments, credits and refunds.  For example, if you paid $10,000 in withholding and estimated payments and got a $6000 refund, your tax liability was $4000.  On the other hand, if you had $3000 in withholding and paid an extra $1000 with your tax return, that would also be a tax liability of $4000.  

Your EV credit can't be more than your tax liability.  The other answers told you where to find it on last year's return.  You will have to determine whether this year is likely to be similar or different.  

Note that if you are self-employed, your tax liability for the EV credit is only income tax.  Self-employment tax is not included in the calculation of your income tax liability.

[4everinbeta]

This is really helpful information. I'm still a little unclear as to how I would apply the credit. For example, last year my ta liability was ~$26k and should be around the same this year. So, if I am understanding correctly, this would mean I would get the full $7500 for federal (plus $2500 for state b/c I live in Colorado). So, my question is on my 2022 returns is this EV credit applied as a deduction?

Again, I'm really sorry fo my ignorance.

[Opus 17]

@4everinbeta 

The credit is a credit. Credits are calculated on schedule 3. Your income tax is calculated on form 1040. After your tax is calculated, any credits from schedule 3 are subtracted from the tax to arrive at your final income tax.  Your final income tax is compared with your withholdings and any excess withholding is returned to you as a refund.

[Critter-3]

Using the CREDIT the fed/state tax liability will be reduced so you owe less in taxes.  It is not just added to your refund.  Here is a for instance...

Say  you owe $26K of tax liability on the return  and   the $7500 credit is used to reduce  that tax bill   then you will owe $18500 in  fed taxes.   So far the math makes sense right ? 

Now if your total withholding (1040 line 32)  is  $18500 then your bottom line on the return is zero ... no refund or balance due.

If your total withholdings are higher than $18500 you will have a refund of the excess withheld. 

If your total withholdings are less than $18500 you will have a balance due on the return. 

If you read/follow  the form 1040 line by line you will see it is simply one long math problem.

[SweetieJean]

Be sure to consider your state taxes if you decide to increase your income to "use up" the Federal EV credit.  Your state might not have a similar credit.

[KevinNg131]

So, if am an Uber driver and filed as  Self-employed. I bought a 2022 Hyundai Kona EV and placed in  service in 2022. Can I apply this EV tax credit to offset my Self employment tax liability? It seemm TT didn't offset the credit to lower my tax liability.

[Critter-3]

Nope ... that credit (along with other non refundable credits)  can only reduce your federal tax liability on line 22 to zero.  It will not cover any of the taxes on line 23 of the form 1040. .

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

[JDZ9]

Greetings,

Form 8936, line 21 takes the credits from Schedule 3 and uses them to reduce the EV credit.  Given the foreign tax credit can be carried forward (at least that part in excess of $600 married filing joint), is there a way to not use a foreign tax credit if less than $600 on the 2022 return, carry it forward to my 2023 return, thereby increasing the 2022 EV credit by that amount?  Note, if this is doable my EV credit would still be under the maximum credit of $7500.  Have spent hours scouring IRS, Turbo and many other sites but am not seeing this specifically addressed. 

Thank you.

[DaveF1006]

You do have the option to take a deduction rather than the credit if you are able to itemize your deductions. Other than that, you cannot forgo the foreign tax credit this year, to carryover into the next year or carryback to the previous year. This is not permissible.

@JDZ9