Question

Hi I'm in the process of purchasing a PLUG-IN vehicle which qualifies for a 7500 rebate. How does that work? Will i get the money back or I need to change things to owe

Forum|Forum|4 years ago
January 23, 2022
1 reply
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Do I need to change my points at work to take less off so i owe more in taxes to take advantage of the 7500 or would they refund money due to taxes paid. Another words should i stop paying taxes to own uncle sam more or can i keep it as is and get the money back?

TurboTax Online

R

RBBrittain

Employee

I assume you're referring to the Federal tax credit for electric vehicles as shown at https://www.fueleconomy.gov/feg/taxevb.shtml . That will be claimed on Form 8936 for the year the vehicle was "placed in service". I assume your vehicle wasn't "placed in service" in 2021, thus you'll have to claim the credit on your 2022 tax return filed in 2023. (I also assume it's a 4-wheeled vehicle; the credit for 2-wheeled vehicles expired at the end of 2021.)

You can do it either way: Wait till you file next year and get the $7,500 credit then, or reduce your withholding to get it back during the year. However, as it is not a fully refundable credit and has other potential limitations, it may be safer to wait till next year.

J

jducker99Author

It would go on my 2022 taxes but biden already said he is giving 7500 for plugin and 12k for ev.

what do you mean by "not a fully refundable credit and has other potential limitations" based on 2021 what limitations are you referring to?

The way it sounds i need to owe money on my taxes to take advantage of it so it i change the withholding at work ill owe more. Wondering if i need to do that or can i get that back if not refundable? Another words do i need to owe at the end of the yr to get it. Like i withold to owe nothing will there be nothing gained from it. They take a lot more than the 7500 a yr from my income at work. From what i read it sounded like if i owe nothing with not be able to use any of it.

R

RBBrittain

Employee

A "fully refundable" credit, like EITC, is one you receive even if it exceeds your "tax liability" -- i.e., actual taxes as computed on your return (tax tables plus Schedule 2) less certain other credits that aren't refundable (like this one).

Tax liability is NOT affected by how much was withheld during the year; if a non-refundable credit reduces your tax liability to zero, you still get a full refund of your withholdings (plus refundable credits). Reducing your tax withholdings will NOT reduce your tax liability; it only reduces the amount of your eventual refund, not the actual credit. Thus, reducing your withholding will let you essentially get the credit faster. (Edit: As financial advisers will tell you, a refund is a psychological positive; but over-withholding is essentially an interest-free loan to Uncle Sam. Thus, it's usually better to reduce your withholding to get a smaller refund or even owe a small amount on April 15.)

The reason I suggested you NOT claim this via withholding is there are certain exceptions to the current credit that might cause issues. In addition to the non-refundable limitation, the credit can be phased out for specific manufacturers once they sell 200,000 eligible vehicles; GM & Tesla are already ineligible for this reason. If you reduce your withholding assuming you'll get $7,500 but don't get that much, you may owe bigtime next year -- big enough that you may owe an underestimate penalty.

Finally: Your quote from President Biden probably refers to enhancements proposed in his Build Back Better bill, which has NOT passed Congress and is being reworked; such a proposal may OR may not pass. I am referring to what is law now; I cannot predict what Congress will do by this time next year, so I have to assume present law.