Clarification on Tax Credit

[Blainestang]

Or, simply change the deductibles from your paycheck to artificially raise you liability at the end of the year.

(I say artificially because the money goes in your pocket throughout the year. Getting a refund is simply getting your money back after the govt used it interest free. Be smart and pay the minimum amount from your paycheck throughout the year.)

Changing your withholding doesn't actually change your tax liability, so it won't make any difference as to how much of the credit you benefit from.

However, lowering withholding could help someone make the larger monthly payments (based on the full price) until one actually receives the tax credit.

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[Ciancagl]

Or, simply change the deductibles from your paycheck to artificially raise you liability at the end of the year.

(I say artificially because the money goes in your pocket throughout the year. Getting a refund is simply getting your money back after the govt used it interest free. Be smart and pay the minimum amount from your paycheck throughout the year.)

The amount you withhold plays no impact on the tax credit. It all has todo with what your TAX LIABILITY is at end of the year

 

[corradoborg]

Or, simply change the deductibles from your paycheck to artificially raise you liability at the end of the year.

(I say artificially because the money goes in your pocket throughout the year. Getting a refund is simply getting your money back after the govt used it interest free. Be smart and pay the minimum amount from your paycheck throughout the year.)

Tax liability has nothing to do with how much you’re withholding from your paycheck. PLEASE don’t take tax advice from randos on an EV truck forum - not even from people who have bought EVs and gone through the process before.
Don’t make any changes that will affect your tax liability until you have a firm delivery date from Ford. By then we’ll know what happens legislatively. If the credit becomes fully refundable as intended by the reconciliation bill, this will all be moot.

 

[Brian Head Yankee]

From Intuit site:
"It doesn't matter how much you owe on your tax return when you file it. The issue is whether you have enough taxable income after subtracting your deductions and exemptions from your adjusted gross income to result in a tax liability of $7500 or more to offset the non refundable credit. You don't need to owe any of it.

For example, a single taxpayer with no dependents would need around $47,000 of income (after subtracting the standard deduction and personal exemption) to have a tax liability of around $7500 in order to offset the $7500 tax credit. If you withheld $7500 of federal income tax during the year, you would still qualify for the $7500 of credit and get it as a refund."

I will admit that I did a poor job explaining it previously. I was trying to state that a person should try to adjust their withholding to create a TAX BILL of $7500 to wipe out the tax bill while keeping YOUR MONEY throughout the year.

 

[astricklin]

From Intuit site:
"It doesn't matter how much you owe on your tax return when you file it. The issue is whether you have enough taxable income after subtracting your deductions and exemptions from your adjusted gross income to result in a tax liability of $7500 or more to offset the non refundable credit. You don't need to owe any of it.

For example, a single taxpayer with no dependents would need around $47,000 of income (after subtracting the standard deduction and personal exemption) to have a tax liability of around $7500 in order to offset the $7500 tax credit. If you withheld $7500 of federal income tax during the year, you would still qualify for the $7500 of credit and get it as a refund."

I will admit that I did a poor job explaining it previously. I was trying to state that a person should try to adjust their withholding to create a TAX BILL of $7500 to wipe out the tax bill while keeping YOUR MONEY throughout the year.

If you don't owe $7500 in taxes, you cannot magically have a $7500 tax bill.
If you are making approximately the same amount of money you have for the past year or two then you should be able to look at the amount of tax owed that is on your tax return.
If your financial situation has changed drastically then a tax professional should be able to help estimate your tax liability for the year.

 

[corradoborg]

If you don't owe $7500 in taxes, you cannot magically have a $7500 tax bill.
If you are making approximately the same amount of money you have for the past year or two then you should be able to look at the amount of tax owed that is on your tax return.
If your financial situation has changed drastically then a tax professional should be able to help estimate your tax liability for the year.

I understand now. He's trying to say that if you already know your tax liability is $7500 or more, you should reduce your withholding to the point where you'll owe $7500 when filing. Then the EV tax credit would wipe out that tax bill, you'll owe $0, and you won't have loaned Uncle Sam $7500 interest-free.

My response, as always, is don't do a thing to your withholding until you either 1) have the Lightning in your driveway or 2) have a VERY firm delivery date from Ford that's in the first half of the year (in case it's delayed). Planning too far ahead can really blow up in your face if things don't line up exactly as you expected.

 

[astricklin]

I understand now. He's trying to say that if you already know your tax liability is $7500 or more, you should reduce your withholding to the point where you'll owe $7500 when filing. Then the EV tax credit would wipe out that tax bill, you'll owe $0, and you won't have loaned Uncle Sam $7500 interest-free.

Ya, giving the government an interest free loan kinda sucks. I usually try to get as close to $0 owed as possible.

 

[corradoborg]

Ya, giving the government an interest free loan kinda sucks. I usually try to get as close to $0 owed as possible.

I'm aware of the "don't loan the government money tax free" argument, but it was made back when interest rates were something. Nowadays the difference between an interest free loan and an interest bearing loan of $7500 for a year is less than what we've all loaned Ford interest free for our reservations. Not enough for me worry about it.

 

[Sbdavis1]

A non-refundable credit means that it can’t reduce your tax below 0. Your withholding has nothing to do with the amount of the credit. If you don’t have a total tax bill above the amount of the credit, than you would only get back the amount of your withholding for the year because your liability would be 0. Again, withholding would not change the amount of credit you could take. For a non-refundable credit, that is determined solely by whether your tax liability is high enough to take the whole credit.

 

[Ciancagl]

From Intuit site:
"It doesn't matter how much you owe on your tax return when you file it. The issue is whether you have enough taxable income after subtracting your deductions and exemptions from your adjusted gross income to result in a tax liability of $7500 or more to offset the non refundable credit. You don't need to owe any of it.

For example, a single taxpayer with no dependents would need around $47,000 of income (after subtracting the standard deduction and personal exemption) to have a tax liability of around $7500 in order to offset the $7500 tax credit. If you withheld $7500 of federal income tax during the year, you would still qualify for the $7500 of credit and get it as a refund."

I will admit that I did a poor job explaining it previously. I was trying to state that a person should try to adjust their withholding to create a TAX BILL of $7500 to wipe out the tax bill while keeping YOUR MONEY throughout the year.

How much you withhold doesn’t matter for this credit. Your income determines your tax liability for the year.
Your tax liability, minus refundable credits (child tax credit, etc) is what you have left to claim the EV tax credit.
In that intuit example, it doesn’t matter if they withheld $0, or $20k throughout the year. They have a tax liability of $7,500, with no other credits, so they can claim the full $7,500 EV credit.

If they had 2 kids and got an EV this year, you’d subtract the child tax credit ($7,200) before the EV credit. So, they’d only be able to claim $300 on the EV credit.

 

[vandy1981]

How much you withhold doesn’t matter for this credit. Your income determines your tax liability for the year.

I think their point is that you should reduce your withholding by $7500 so you're not waiting for a refund at the end of the tax year.

I claimed an EV credit for TY2020 and it took over 4 months to get my refund. In retrospect, I wish I had adjusted my withholding to offset the credit.

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