Treasury releases guidance for new EV tax credits

[TaxmanHog]

Another way to handle this is to immediately zero out your withholding until you get $7500 less taken out of your paycheck.

IF you know your purchase will meet the standard for this tax year.

Then you do of course have to remember to fix your withholding back to the correct level after you get your $7500.

Technically possible, but unlikely anyone has that much withholding capacity remaining in the final 13 payroll weeks of this year, those who do might trigger a SAR to the IRS W4 analysis team by your payroll department.

This is playing with a hand grenade, only financial skilled individuals with tenacious calendering and discipline should follow this advice, forgetting to revert the W4 after 1/1/2024 could be killer come the spring of 2025.

I have MANY war stories I could share from my working days dealing with folks who placed themselves in such a predicament, it's not pretty!!

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[TaxmanHog]

That's not how it works. Your withholding has nothing to do with your liability.

This is correct, but what he's saying is to draw down WH credits to allow the EV credit to cover the actual net balance due on account for those who still have the 7500 or more tax liability, a lot of fine calculations are needed the thread that needle carefully.

 

[TaxmanHog]

Guys….starting in 2024, the tax credit is refundable. Tax liability doesn’t matter. You just need to buy a qualifying vehicle and fall within the income limits.

I missed that detail, please refresh my memory where it's written, I have been busy getting my last fair weather Harley riding in this evening and have not read through all the details in the FAQ

 

[Maquis]

I missed that detail, please refresh my memory where it's written, I have been busy getting my last fair weather Harley riding in this evening and have not read through all the details in the FAQ

Q4: What if a buyer has insufficient tax liability to fully use a transferred credit? (added October 6, 2023)
A4. The amount of the credit that the electing taxpayer elects to transfer to the eligible entity may exceed the electing taxpayer’s regular tax liability for the taxable year in which the sale occurs, and the excess, if any, is not subject to recapture from the dealer or the buyer.

 

[TaxmanHog]

Q4: What if a buyer has insufficient tax liability to fully use a transferred credit? (added October 6, 2023)
A4. The amount of the credit that the electing taxpayer elects to transfer to the eligible entity may exceed the electing taxpayer’s regular tax liability for the taxable year in which the sale occurs, and the excess, if any, is not subject to recapture from the dealer or the buyer.

Page 18 of he rev proc says this:

https://www.irs.gov/pub/irs-drop/rp-23-33.pdf

 

[bmwhitetx]

Q4: What if a buyer has insufficient tax liability to fully use a transferred credit? (added October 6, 2023)
A4. The amount of the credit that the electing taxpayer elects to transfer to the eligible entity may exceed the electing taxpayer’s regular tax liability for the taxable year in which the sale occurs, and the excess, if any, is not subject to recapture from the dealer or the buyer.

Interesting. I also read this which says that too. I think the detail is this loophole applies if you transfer the credit to the dealer. But if you use the current method of a tax credit on your return then you may not get the full refund?

 

[TaxmanHog]

Interesting. I also read this which says that too. I think the detail is this loophole applies if you transfer the credit to the dealer. But if you use the current method of a tax credit on your return then you may not get the full refund?

Interesting gray zone that the REV PROC does not illustrate, but clearly those with high MAGI's would be disqualified and will face the wrath of the IRS with an additional $7500 assessment on top of normal income taxes, etc.

I look forward to seeing the mechanics of this process on the 2024 form 8936 and related schedules to see how this reconciliation is handled !!

 

[TexasEdition]

Technically possible, but unlikely anyone has that much withholding capacity remaining in the final 13 payroll weeks of this year, those who do might trigger a SAR to the IRS W4 analysis team by your payroll department.

This is playing with a hand grenade, only financial skilled individuals with tenacious calendering and discipline should follow this advice, forgetting to revert the W4 after 1/1/2024 could be killer come the spring of 2025.

I have MANY war stories I could share from my working days dealing with folks who placed themselves in such a predicament, it's not pretty!!

Agreed.

I worked in a Federal numbers factory for decades so this comes naturally. I know sole proprietors who have occasionally messed up their more complicated tax situations.

I deleted my original posts because they added confusion rather than clarity.

 

[Maquis]

Interesting. I also read this which says that too. I think the detail is this loophole applies if you transfer the credit to the dealer. But if you use the current method of a tax credit on your return then you may not get the full refund?

The whole point of this is for the buyer to realize the credit at point of sale. I can’t imagine why a buyer wouldn’t transfer the credit to the dealer. Unless the dealer is so shady that they aren’t giving the $7500 to the buyer, in which case, I’d walk out the door.

 

[captcory]

Quote" The credit is nonrefundable, which means it can lower or eliminate taxes owed but will not result in a refund."

Is this true for 2023 tax year?

 

[Maquis]

Quote" The credit is nonrefundable, which means it can lower or eliminate taxes owed but will not result in a refund."

Is this true for 2023 tax year?

What are you quoting? This thread is discussing new 2024 rules.

 

[captcory]

Sorry I'm just trying to see if i'll get the tax credit, I typically don't owe but my withholdings are more than 7500 and I thought It would be a refund. If not I'll stop my withholdings.

 

[Maquis]

Sorry I'm just trying to see if i'll get the tax credit, I typically don't owe but my withholdings are more than 7500 and I thought It would be a refund. If not I'll stop my withholdings.

For 2023, you need a tax liability of at least $7500 to get the full credit. Your withholding is irrelevant.

 

[TaxmanHog]

Quote" The credit is nonrefundable, which means it can lower or eliminate taxes owed but will not result in a refund."

Is this true for 2023 tax year?

Yes, the unused balance of credit caused by low or no net income tax balance is NOT refundable, the forms and related schedules have statements and process logic that say "Not less than zero" when performing the computations.

I'm curious how IRS will construct the processing logic and enforcement policy for 2024 and beyond, essentially they are turning this into a refundable credit regardless of net tax due.

Also need to re-read the IRA to see if there are actual assertions in law that support this or is the administration & Treasury playing fast and loose with policy waivers when it comes to enforcement against low tax class individuals.

 

[TaxmanHog]

Sorry I'm just trying to see if i'll get the tax credit, I typically don't owe but my withholdings are more than 7500 and I thought It would be a refund. If not I'll stop my withholdings.

Line 22 is the relevant point of impact for low and no income tax classes, there will be no boost to your net refund check if line 18 is zero, and of limited impact to you if line 18 is $1 to a value less than $7500.

The graphic of 2021 form below has the same logic for 2022 & 2023, while 2024 is going to be interesting to see how the situation is addressed

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