Reposting due to error - Bought an Electric car 2 months ago, changed my W4 Pay withholding to zero same time, so as to claim the EV credit. Will I be penalized if any underpayment? I cant predict my overtime adding or not for the remainder of the year.

[KarenL4]

Hi,

I understand you changed your W-4 withholding to lower your federal tax withholding to zero in anticipation of the electric vehicle credit and you want to know if you will get penalized for under withholding. The answer is "maybe."  The IRS requires you pay your taxes basically as you earn your income. Jobs are really great at getting this right if nothing unusual happens (like a second job, a big credit or a self-employment gig that isn't figured into the employers withholding). 

What the IRS cares about is whether you paid in enough taxes as the right time.  Since it's complicated, they provide a safe harbor where you won't get penalized if you meet one of these three criteria:

• You paid in 100%-110% of prior year taxes (based upon your income level)
• You paid at least 90% of current year taxes
• You will owe less than $1K on tax due date (generally 4/15)

There is more detail in this TurboTax article.  Take a peek. If you are worried, this article also tells you how to make estimated tax payments.

Please cheer if you find this article helpful! 

[vfellows]

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.