Optimize W-4/Federal Withholdings after an Electric Vehicle Acquisition

[Adriaan]

Hello,
I just acquired an EV, which is eligible for the 7.5K federal tax credits.
I file jointly with my wife, no kids. We both have jobs. Our income is pretty good, and we usually withhold from our bi-monthly paychecks a bit more for federal taxes.
Last year we overpaid and got a 2.5k federal refund, but this year we both got a raise and a bonus.
Since acquiring the EV, I would like to optimize the additional withholdings and not overpay the federal taxes, but on the other hand, we had an income increase in 2023 and a bonus related to 2022 (paid in 2023). We are aware of the calculators and potential estimates for 2023. We want to know the best approach to avoid overpaying federal tax this year (I want to reduce the w-4 additional withholdings with accuracy staying close to zero).
Thank you.

[LynnMcQ · Accepted solution]

Hi!  

I know you said you are aware of the W-4 Calculator tools; however, that's what I'm going to recommend.  The calculator will let you feed in your EV credit (congratulations), bonuses, etc. and give you a good estimate. Then, throughout the year, keep your eye on changes in your tax situation (income, for example) and ytd withholding and be ready to make adjustments as needed.  While you're doing this, don't forget your State taxes.

Good for you taking the time to work through the variable that will impact your tax liability and refund/balance due amount on your 2023 tax return.