Hello if I purchase a ev vehicle Nd k get the 7,500 tax credit how does that work? If I make 100,000 that year u minue the 7,500 so it will say I make 92,500?

[puma2815]

Would I get 7,500 return? If someone can ex0lain how this works with examples. Thank you

[NCperson]

@puma2815 this is a tax credit, not a tax deduction.  Look at like 22 of your tax return (prior to applying the credit). The credit is worth whatever is on this line or $7500, which ever is less.

[VolvoGirl · Accepted solution]

It does not reduce your income.   The EV credit only reduces your tax liability on 1040 line 22 to zero. Then you will get back all your withholding and any refundable credits. But it doesn't reduce any other taxes on line 23 like self employment tax or a 10% early withdrawal penalty on IRAs.

And if your tax on line 22 is less than 7,500 and you want to take advantage of the full 7,500 credit you can increase your taxable income (like convert a traditional IRA to a ROTH IRA or sell some stocks with a gain). That will increase the tax on line 16 but even though it won't increase your refund you won't pay tax on the extra income. Then you won't be paying tax on that income in the future. If this confuses you just ignore it.