Why Turbo Tax Home & Business didn't offset $7500 EV Tax credit ?

[KevinNg131]

I am an Uber driver. I bought a 2022 Hyundai Kona Electric on 08/30/2021 to use for Uber. when I apply for EV tax credit. Turbo Tax didn't offset the credit off my tax liability, why? Is this a glitch that need to be fixed? I have a tax liability of $9250, but for some reasons TT didn’t offset the EV credit on my tax liability as a business deduction. Anyone know this answer. please help.

[JulieS · Accepted solution]

No, this is not a TurboTax problem. The EV tax credit is not refundable. This means that it only offsets income tax. Less well known is that that it doesn't offset self-employment tax either.

If you look at the second page of your 1040, your total income tax appears on line 18. Your total non-refundable credits appear on lines 19 and 20. 

Line 22 is your total tax after non-refundable credits. For you that amount should be $0. On line 23, the self-employment tax is added. 

If you check those lines and still have questions, just reply back to this thread. 
 

[KevinNg131]

Thanks for the clarification. Is this has been like this for years? It is sort of a bummer for self employed people, isn’t it?

[KevinNg131]

So the EV tax credit only works for those who works regular jobs and receive W-2?

[JohnB5677]

Part of that is correct.  People that get a W-2 will qualify; however, people that are self-employed and that may get a 1099-MISC, 1099-NEC or possibly a 1099-K can qualify as earned income for income tax purposes.  

The point that @JulieS made is that self- employment tax is not included.  The self-employment tax rate is 15.3%. That rate is the sum of 12.4% for Social Security and 2.9% for Medicare.

@KevinNg131 

[Critter-3]

It is completely fair, those that are on a W-2 have already paid their FICA taxes through payroll deduction. Those who are self-employed pay the self-employment taxes (which is the same as FICA )on their tax return. Both the self-employed and the waged employee can take the EV credit against federal taxes and federal taxes only. 

[KevinNg131]

But when I did my tax. The only federal tax that I owed is self employed tax, so what you just said seems didn’t apply for self-employed or Gig job. Therefore the EV tax credit doesn’t apply for self-employed people. With that being said, it is a disadvantage for people who work as an Uber driver and buy an EV anyway.

[Critter-3]

@KevinNg131 

So the federal taxable income was negated by the standard or itemized deduction on the form 1040.  So you had nothing for the EV credit to reduce.  You may have used the actual expenses for the business use of the EV so you got a deduction on the Sch C that normal employees don't get ... so you are ahead of the game on them this way.  

You still owe the SE taxes just like an employee has FICA taxes withheld from their paychecks.  Why do you think you don't have to pay them like everyone else?   The EV credit only reduces the federal income tax and not any of the other taxes the IRS collects on the form 1040 like the SE taxes.  Note how the lines are placed on the 1040 ... it is one long math problem and you must follow the format as written by congress.  Congress made the credit non refundable and placed it on the form 1040 like it is ... so if you want to cry foul talk to your local congress person. 

[KevinNg131]

Isn’t self-employed is considered tax as an employee and an employer, so that we pay double tax as a self-employed? So my tax liability as an Uber driver came out $9000+, what I still don’t understand is how come EV tax credit don’t offset the tax liability since TT shows that part of the federal tax I owe to the IRS?

[Critter-3 · Accepted solution]

Isn’t self-employed is considered tax as an employee and an employer, so that we pay double tax as a self-employed?   Yes but no ... you do pay both the employer & employee portions of the FICA taxes however you are given a deduction for the employer's portion so you don't have to pay income tax on that portion.  Review the entire return to see how that happens.  

what I still don’t understand is how come EV tax credit don’t offset the tax liability since TT shows that part of the federal tax I owe to the IRS?    Again ... the EV credit can only offset federal income tax and not the SE taxes the IRS is collecting for the SS administration on the return.  This is the same thing as an employee ... the FICA taxes are withheld from the gross pay and sent to SS by the employer along with the employer's portion.  This is the same thing that happens for the self employed on the tax return.  The employee cannot use the EV credit to pay the FICA taxes that were withheld from their paycheck so why do you believe you should get different tax treatment?  If this still is confusing to you then you probably need to talk to a local tax pro who can explain it better  but  the EV credit still  cannot and will not cover the SE taxes on your return. 

[KevinNg131]

I got it now. Thanks for the better explanation. Cheers.

[KevinNg131]

So the EV tax credit won’t work for self-employed people, because they never have to pay Federal income tax, right? Sorry for my ignorance about tax laws.

[Critter-3]

NO ... it will work if the SE person has more income ... your income was completely negated by the standard or itemized deduction  so there was nothing left for the EV credit to negate.  Add $100K of income to your sch C for a test and look at what happens to your return.  

[hlong9999]

I'm also Uber driver. 
As Uber driver, we can't use EV tax credit to reduce Self employment tax payment?

Is this true?

[DoninGA]

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@hlong9999 wrote:

I'm also Uber driver. 
As Uber driver, we can't use EV tax credit to reduce Self employment tax payment?

Is this true?

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Yes, that is correct.