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We just got an EV and understand that $7500 is federal tax credit, not refund. So we need to owe that much tax by the end of the year to benefit from it. We normally owe around $400-$500 on federal return so have to change my W4 by adding dependents. When I was submitting my W4 update I see it's showing the total $ amount we're claiming. I set up my new W4 so it showed $7000 at the bottom as total claiming.
My question is, since there's only 3 months left till the end of the year, how is that $7000 shown in the new W4 calculated? Does it mean $7000 taxes won't be paid starting today, or only 3 months worth of the $7000 ($1750) will be held for me?
Thank you!
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Changing your W4 won't matter. It's not whether you get a refund or a tax due. And the withholding and estimated payments 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'll get the whole credit back.
The EV credit only reduces the tax liability on 1040 line 22 to zero. Then you will get back all your withholding. But it doesn't reduce any other taxes on line 23 like self employment tax.
Changing your W4 won't matter. It's not whether you get a refund or a tax due. And the withholding and estimated payments 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'll get the whole credit back.
The EV credit only reduces the tax liability on 1040 line 22 to zero. Then you will get back all your withholding. But it doesn't reduce any other taxes on line 23 like self employment tax.
Oh so I shouldn't change my W4. my 1040 line 22 is much higher than $7K so I'll just leave it as is.
Thank for the late nigh quick response 🙂
I agree ... do NOT make any changes to the W-4 this late in the year because you will enevitably forget to change it back in January and you will be woefully underwithheld next year. Just be thrilled about any increased refund next year.
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