Hi! Should my wife and I stop paying federal taxes for the next 6 months in order to get the full $7,500 Tesla tax credit? Is it that simple of a task or is there more?

[coltsqb]

We both have done the calculations, and if we both stop paying federal taxes at our jobs for the next 6 months, we should owe ~$8,000 in federal taxes. Theoretically, this would mean we'd qualify for the full $7,500 Tesla tax credit if we do end up buying one right now, correct?

Also, do we need to file jointly or separated? Does it make a difference?

[Mike9241]

Who Qualifies

You may qualify for a credit up to $7,500 under Internal Revenue Code Section 30D if you buy a new, qualified plug-in EV or fuel cell electric vehicle (FCV). The Inflation Reduction Act of 2022 changed the rules for this credit for vehicles purchased from 2023 to 2032.

The credit is available to individuals and their businesses.

To qualify, you must:

• Buy it for your own use, not for resale
• Use it primarily in the U.S.

In addition, your modified adjusted gross income (AGI) may not exceed:

• $300,000 for married couples filing jointly 
• $225,000 for heads of households
• $150,000 for all other filers

You can use your modified AGI from the year you take delivery of the vehicle or the year before, whichever is less. If your modified AGI is below the threshold in 1 of the two years, you can claim the credit.

The credit is nonrefundable, so you can't get back more on the credit than you owe in taxes. You can't apply any excess credit to future tax years.

not all vehicles qualify but if they do the dealer must provide you with paperwork and submit forms to the IRS.

the credit goes against your tax liability line 22 of 1040. so, the federal withholding has no effect on the eligible credit. it will merely reduce any taxes owed or increase your refund.

you should read this from the iRS about the EV credit

https://www.irs.gov/credits-deductions/credits-for-new-clean-vehicles-purchased-in-2023-or-after 

[NCperson]

how much is withheld on paychecks does not matter. 

What matters is what is on Line 22 of Form 1040.  That is your tax liability.  Prior to the EV Tax credit, that line must be at least $7500 for you to qualify for the entire credit. 

Be reminded also there is an income limitation.  If you purcahse a new EV in 2023, your income must be below the limit  - you can use your 2022 income or your 2023 income to satisfy the requirement. 

Filing Separate is never a good idea for financial reasons.   I have yet to see a case where filing Separate results in lower tax across the two returns than simply Filing Joint.  

[Opus 17]

Your tax liability is what you actually owe to the government after all credits, deductions and dependents are factored in (but not counting self-employment tax).  For example, if you had $8000 of job withholdings and got a $1000 refund, your tax liability was $7000.  Or, if you had $8000 of withholdings and owed $1000, your liability was $9000.

If your income tax liability is expected to be less than $7500, the only way to increase your tax liability is to have fewer deductions or more income.  For example, you might temporarily stop your contributions to a pre-tax IRA or 401k and contribute to a Roth IRA or Roth 401k instead.  That would remove a deduction and raise your taxable income, while still giving you tax-free benefits when you retire.

You can reduce your withholding if you want to get more money in your paychecks in return for a smaller refund later, but changing your withholding does not change your tax liability.