I used the IRS estimator to adjust my withholding to avail the $7500 EV credit. I purchased a Hyundai Ioniq 5 2022 in JUN-2022 (sale completed, registered etc) before the IRA was signed. My assumption is that I'm eligible for the full $7500 EV credit. The question I have is should I adjust my payroll withholding to reduce the taxes now? Or, is the $7500 credit simply added to my refund/tax owed at the time of filing?
The "non-refundable" tag with the EV credit is a bit confusing for me. Please help explain that.
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Hi psen, thanks for the event question.
There are different types of credits and payment in Form 1040:
Non-refundable credits, such as the EV credit, credit for dependent care;
Refundable credits, such as Earned Income Credits
Partially refundable credits, such as American Opportunity credit (an education credit.)
Once the income tax liability and other taxes are determined, the first group to apply is the "non-refundable credits" to reduce the tax liability up to zero.
Then the refundable credits together with your payments (such as W-2 payroll withholding) reduce/erase the remaining tax liability or even create a tax refund.
Depending on your 2022 tax situation, the EV credit will be used in the first group against tax liability. EV credit not used cannot carryover to 2023.
Your payment via payroll either reduces the remaining tax liability or creates a refund for you.
Therefore, larger withholding creates a smaller balance due or larger refund;
smaller withholding creates a larger balance due or smaller refund.
Thank you and hope the above helps.
Hi psen, thanks for the event question.
There are different types of credits and payment in Form 1040:
Non-refundable credits, such as the EV credit, credit for dependent care;
Refundable credits, such as Earned Income Credits
Partially refundable credits, such as American Opportunity credit (an education credit.)
Once the income tax liability and other taxes are determined, the first group to apply is the "non-refundable credits" to reduce the tax liability up to zero.
Then the refundable credits together with your payments (such as W-2 payroll withholding) reduce/erase the remaining tax liability or even create a tax refund.
Depending on your 2022 tax situation, the EV credit will be used in the first group against tax liability. EV credit not used cannot carryover to 2023.
Your payment via payroll either reduces the remaining tax liability or creates a refund for you.
Therefore, larger withholding creates a smaller balance due or larger refund;
smaller withholding creates a larger balance due or smaller refund.
Thank you and hope the above helps.
I highly recommend you do NOT change your payroll at this late date because you will inevitably forget to put it back come January and you will be in a world of hurt next year. Simply enjoy the increased refund this year.
Hi,
Here's some info:
Credits for Electric Vehicle (EV)
The amount is the amount of the credit, up to $7,500, can reduce your income taxes to zero. Look at your withholding year to date and add the 7,500 amount to that. Compare the result to your estimated 2022 total income taxes. If the withholding plus the credit amount are over your estimated 2022 taxes, you can safely continue no withholding until 12/31/2022. If it is not sufficient to cover your total income tax for 2022, complete another W-4 with your employer to start withholding again until the end of 2022. You can also make estimated payments for 2022.
To estimate your 2022 taxes, use this link https://turbotax.intuit.com/tax-tools/calculators/taxcaster/
The Turbo Taxcaster, Tax Calculator 2022 will help you do your estimated taxes.It is important to note that the EV tax credits are nonrefundable. This means the credits can only be applied to the taxes you owe in a given year. If you received more in credits than you owe in taxes, you will not receive the difference. The credits do not roll over, either.
Note: Due to your purchase date, your credit is determined under the old law (still up to $7,500). This IRS page explains more.
Hope this helps. Please cheer below if it does!
Best,
Karen
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