If I purchase an electric vehicle with the 7500 tax credit, how do I ensure that I will owe enough at the end of the year to see that full credit when I do my taxes?

[greenearth7]

Is there a penalty for underpayment of taxes from your paychecks during the year?

[Texas Roger · Accepted solution]

It doesn't matter how much you owe on your tax return when you file it. The issue is whether you have enough taxable income after subtracting your deductions and exemptions from your adjusted gross income to result in a tax liability of $7500 or more to offset the non refundable credit. You don't need to owe any of it. 

For example, a single taxpayer with no dependents would need around $47,000 of income (after subtracting the standard deduction and personal exemption) to have a tax liability of around $7500 in order to offset the $7500 tax credit. If you withheld $7500 of federal income tax during the year, you would still qualify for the $7500 of credit and get it as a refund. 

You can use the tax table to determine how much income would be needed for other filing statuses: https://www.irs.gov/pub/irs-pdf/i1040tt.pdf

[allenbond]

Thank you for the answer. Since the standard deduction will change for 2018, how is this question answered for 2018 tax year?

[render360]

Using the taxpayer income example listed above of $47,000,  If this taxpayer had $10,000 withheld but only owed $6,000 ($4k overpayment), what would the final return be when you factor in the Electric Vehicle Tax Credit? Is it correct to assume that you would receive the $7,500 + $4,000? Or would it be calculated as $6,000 + $4,000? Thanks in advance for any insight and clarification.

[Texas Roger]

The amount of electric vehicle tax credit that a taxpayer can get is limited by the amount of tax liability. This is because it is a non refundable credit. If the tax liability was $6000 and the taxpayer had $10,000 withheld, he or she would get back the $4000 of overpayment plus $6000 of electric vehicle tax credit. For the taxpayer to get the full $7500 of electric vehicle tax credit, the tax liability must be at least $7500. For a single taxpayer, the taxable income on a 2018 tax return after subtracting the standard deduction or itemized deductions must be near $52,000 for the tax liability to be about $7500.
CORRECTION: If the tax liability was $6000 and the taxpayer had $10,000 withheld, he or she would get back the full $10,000 of tax withheld and $6000 of the electric vehicle tax credit would offset (pay) the tax liability. The taxpayer would not get the additional $1500 of electric vehicle tax credit because the tax liability was not high enough to offset the rest.

[SweetieJean]

Consider converting a Traditional IRA to a Roth. Doing so however, may create state taxes due.

[allenbond]

TexasRoger, thank you very much for your time and effort! Your answer is exactly the detail I was looking for!

[Muthu-Subramanian]

How about married filing jointly with 2 children credit? 2018 tables been out? Texas Roger

[xmasbaby0]

@Muthu Subramanian   This is a year old thread about the EV credit for an electric vehicle.  Is that what your question is about?  If not, please start your own new thread with your own question.

[Muthu-Subramanian]

Yes, I am talking tax credit and 2018 tax tables

[Texas Roger]

If your 2 children are under age 17 at year end 2018, they would each qualify for $2000 of child tax credit which is subtracted from your tax liability before the electric vehicle credit can be subtracted.  If you had no other credits, you would need $11,500 of tax liability to qualify for the full $7500 of electric vehicle credit. A couple filing married filing jointly would need $113,186 of adjusted gross income to have $11,500 of tax liability and qualify for the full $7500 of electric vehicle credit.

[Muthu-Subramanian]

@Texas Roger you are just awesome. so child tax credit has increased from 1000 to 2000?, also this 2018 chart table been published or you have insider information?

[Muthu-Subramanian]

@Texas Roger you are just awesome. so child tax credit has increased from 1000 to 2000?, also this 2018 chart table been published or you have insider information?

[Texas Roger]

Yes the maximum child tax credit for a child under age 17 has been increased to $2000. The standard deduction for MFJ has increased to $24,000 but there are no longer any deductions for personal or dependency exemptions. Here are some links for 2018 tax information:
<a rel="nofollow" target="_blank" href="https://ttlc.intuit.com/questions/4337493-what-are-the-federal-tax-rates-for-2018">https://ttlc.intu...>
<a rel="nofollow" target="_blank" href="https://ttlc.intuit.com/questions/4482873-which-federal-tax-deductions-have-been-suspended-by-tax-re...>
<a rel="nofollow" target="_blank" href="https://turbotax.intuit.com/tax-tips/irs-tax-return/2017-tax-reform-legislation-what-you-should-know...>

[Muthu-Subramanian]

Wow, cool, i was going to ask about exceptions but you answered it already, so it becomes simple now. get your AGI to this much, take standard deduction and apply these 3 credits and you will get 7500 back. now have to see how to get to 113 number..there is no way one can use itemized deductions, right? property tax caps at 10K, mortgage interest cant go beyond 24K