The EV Tax Credit is NOT correctly calculated by TurboTax!!!

[JiminOregon]

I decided it was time to replace my aging '05 Nissan and buy a new 2023 Electric Vehicle.

I am retired and receive income from Social Security and a meager small pension.

For the past seven years, with such a low AGI, I typically owe zero Federal and less than $200.00 in Oregon state income taxes.

This would be exactly the same this year, if I had not purchased my new qualifying vehicle in November 2023, taking advantage of the $7,500 IRS EV tax credit.

To make the purchase, I withdrew $27,500 from my IRA Account and financed the remainder.

Using Form 8936 Clean Vehicle Credit, TurboTax correctly accounted for the $5,606.00 in additional Federal taxes from my IRA withdrawal, reducing my Federal Tax Burden to zero.

However, TurboTax is now calculating my Oregon state income taxes at a staggering $2,472.00! A much higher income level, as well as assessing a severe underpayment PENALTY with INTEREST and creating $661.00 QUARTERLY state vouchers for the 2024 taxable year...WHY???

Either something is seriously WRONG with how TurboTax is calculating this, or the EV Tax Credit is a huge government SCAM.

Any ideas?

[RobertB4444 · Accepted solution]

Oregon doesn't have a clean energy vehicle tax credit to offset your tax bill.  And your clean vehicle credit is only usable on the federal return.  So the Oregon return is correct.

Oregon does have a rebate program.  If you haven't taken advantage of it check it out here.

You can ignore the estimated payments for 2024.  Your taxes should go back to where they were after this year so you won't have any issues unless you owe money next year.

@JiminOregon 

[JiminOregon]

Why am I hit with an underpayment penalty and interest?

[DawnC]

Because you did not pay estimated taxes for your retirement income.   Did you enter any tax withholding from your 1099-R?   The IRS levies underpayment penalties if you don't withhold or pay enough tax on income received during each quarter. Even if you paid your tax bill in full by the April deadline or are getting a refund, you may still get an underpayment penalty.

For federal underpayment penalties, you can visit that section of TurboTax.  Search for penalty, and use the jump to link, to reduce or possible eliminate the penalty.    You can annualize your income or apply for a waiver.  Underpayment penalties 

Each state return has its own penalty section in Other Tax Situations at the end of the state interview where you can possibly reduce or eliminate the penalty incurred.    

Oregon Underpayment penalties - 

• 5 Percent Failure-to-Pay Penalty: This penalty is added to an account when a tax has not been paid by the due date (ORS 314.400, 321.560).

To request a waiver directly from the State of Oregon, visit Oregon Dept of Revenue

[Edited 03/27/24 | 1:27pm PST] @JiminOregon 

[JiminOregon]

Why are you asking me about federal tax withholding? My issue is with state, not federal. Please read my original post. Thanks.

[Vanessa A]

It is the same situatino for the state as it would be for federal.  Whenever you do not have enough taxes withheld, whether it be for state or federal, you are hit with underpayment penalties. 

Have you walked through your entire Oregon return yet?  As you continue through you will be asked if any of these situations apply to try to remove the underpayment penalty.  In Oregon, that would be if you paid at least 90% of the taxes due prior to the filing date. 

[JiminOregon]

Robert,

Thanks very much for the well-considered and detailed reply to my question! I think it is spot on.

Yes, unfortunately Oregon calculates their cut on IRS 1040 Line 15, right before the Form 8936 Clean Vehicle Tax Credit. This basically nullifies any savings received from Uncle Sam.

Also, the state EV rebates here are a bit of a joke. They open very narrow windows of opportunity, cap the purchase price so low as to exclude many options, then quickly close the program when they run out of cash. It's sort of like playing musical chairs. Many residents rightfully complain that you really have to buy a new car when your old one decides it is time, not some bureaucrat in Salem.

So many other states do a much better job than Oregon of genuinely supporting the move to EV's. Colorado is a good example.

Please keep giving fair and honest advice on TurboTax!

Jim

P.S. Lived in Texas 32 years. Wonderful experience. Hope you get to see the eclipse!