New EV Tax credit - Questions .....

[wfranc01]

Hi All- Just purchased a new 23 Tesla Model Y with the qualifying $7500 tax credit.  My question is that me and my wife qualify for the incentive and yearly we do not pay any federal income taxes (we get a small refund).  We both work and our withholdings is above $25k, next year when filing will we get  the $7500 tax credit/refund - based off the withholdings amount - Or do I need to adjust my withholdings in order to get the full amount refund.  Thanks again, very confusing to the avg person.. !

[KatherineS63]

The EV credit is non refundable.  This means that when you enter in your income and get down to Taxable Income, you will only receive a credit up to the amount of tax that is calculated off of the Taxable income. 

So for example, pull up your 2022 tax return.  Look at line 15.  That is your taxable income.  Now look at Line 16.  That is tax on the income.  If your tax is $0 then you would not be able to recevied a NON REFUNDABLE credit. 

If you tax is $1000 then you most likely would only receive $1000 of the $7500.  

If you look at the IRS.gov website it will give you all the information about this credit.  One part I see is this:

"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."

I suggest that you look at this link:  https://www.irs.gov/credits-deductions/credits-for-new-clean-vehicles-purchased-in-2023-or-after

It spells out all of the limits. 

If you still purchase an EV, I hope you enjoy it!  I love mine!!  We traveled out east and had a blast!!

[The Tax Beaver]

Hi wfranc01,

This is an interesting question. EV credits are "non refundable" credits. In essence this means that your tax will be lower using the credit. So, EV credits can be used to get withheld money back on your tax return but can't "put money in your pocket" like a refundable credit. So, in effect if you were to increase your withholding, yes, you would get up to 7500 back. However, you would just be getting money back that you had given to the IRS in advance, so I am not sure there is any reason to increase your withholding. Isn't it better to just keep the money in your pocket rather than using the IRS as a savings account?

[wfranc01]

Thanks @KatherineS63  .  I appreciate the explanation on the topic.

I did look up on my 2022 taxes, and my tax (line 16) is above the 30k area.

That being said, will the credit work in my favor of receiving a refund? Or the credit just lowers that amount (line 16) to be taxed on? In turn receiving a better return..   Thanks again.. enjoy the EV life..

[KatherineS63]

The credit will come off of the Line 16 Tax.  If you tax is $30,000 then your tax credit could be $7500 making tax now $22500.  The only question I have is what is your income?  

This is something from the IRS.GOV site:

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.

If you income is under the Modified adjusted gross income amounts, then the credit will come off your taxes and you will lower your taxes.  You will never get the $7500 as a separate check...it is non refundable, that is what that means....hope that is clear.

Also remember that MSRP must be $55000 or under for car and $80,000 under for Trucks...see link for specifics.  https://www.irs.gov/credits-deductions/credits-for-new-clean-vehicles-purchased-in-2023-or-after

I love talking about this because I just bought a Tesla and we have a Ford Lightening on order....our MSRP was $83000 so we are working on removing floor mats, charger and Tonneau cover!! Got to get the MSRP under $80000.

[wfranc01]

@KatherineS63  - Again, thanks for a detailed response.  We do see the AGI, as well as the Tesla Model Y price.

I guess I can leave all alone with my withholdings and have the credit apply to lower my taxable income - which I think would help in getting some kind of refund better than last year.  I will be looking at my next EV for sure !

[Katherine S 63]

I was at a Renewable Energy Fair in Wisconsin last weekend and they said some of the Teslas have batteries lasting over 400,000 miles.  Sure hope that will be me!!!

[KDTaxesRUs]

That decision is totally up to you. When more is paid to the government than will be owed in taxes during the year, you are basically making a tax-free loan to the government. Some people, however, use the withholding tax as a "savings" account and  plan a particular purchase they want to make with the refund at tax time. 

[Katherine S 63]

This is not the correct thinking...sorry not trying to offend. 

Non Refundable means that based on your income you will then see how much you have to pay in taxes.  If you have a really low income, then you might owe zero taxes.  If you bought an EV then you would not be able to get the EV Credit.

If you owed zero tax and paid in $7500 in taxes via withholdings (not sure exactly why you would do thing), you would then get your withholdings back of $7500.

Refundable credits are different.  You can actually owe zero tax and get a credit because it is 'Refund'able.

Hope that helps to make it clear.