Will I need to adjust my w4 tax withholdings to get the solar tax credit, I usually have my withholding at 0 to make sure i do not pay taxes?

Forum|Forum|2 years ago
April 9, 2024
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MinhT1

Your solar tax credit isn't affected by your tax withholdings, so your form W-4 has nothing to do with your solar tax credit.

The solar tax credit is a non-refundable credit, but it can be carried forward to be used in future years. Your ability to use the solar credit in any given year depends on your tax liability, which depends on your taxable income and any eventual tax credits (such as the Child Tax Credit or the Earned Income tax credit).

You can only have 0 withholding if you mark as Exempt on your form W-4. You can only do this if you had no tax liability in the preceding year, and expect no have no tax liability in the current year. If this is the case (that is you have no tax liability), then you won't benefit from the solar tax credit.

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djorge59Author

Ok I guess I meant 1 not 0

I appreciate your answer

so if for instance last year on my 1040 on line 22 I had $3456 That would be my tax liability

If my solar credit is around 14,000 it will take around 4 years to get my full solar credit back?

DawnC

Employee

Yep, about 4 years if your income, credits and deductions are about the same each year.

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VolvoGirl

Employee

Don't change your withholding. It's not whether you get a refund or a tax due. And the withholding and estimated payments doesn't matter. It's if you have a tax liability on your income. Look at your 1040 line 22 for total tax. So as long as Line 22 is more than the credit, you'll get the whole credit.

The credit only reduces the tax liability on 1040 line 22 to zero. Then you will get back all your withholding and any refundable credits. But it doesn't reduce any other taxes on line 23 like self employment tax or a 10% early withdrawal penalty on IRAs.

djorge59Author

One more question

say for instance if enter 3 instead of 1 will my tax liability increase therefore decreasing the time i get the full solar credit back?

JohnW152

As the posters above indicate, changing your withholding has nothing to do with whether you'll get the credit, or how much. See if this makes sense:

Whatever you withhold won’t affect the tax, which, for tax year 2023, was on line 16 of Form 1040.
Your solar energy credit will be reported on line 20 of Form 1040, via Form 5695 and Schedule 3. Any energy credit you claim on line 20 will reduce your tax from line 16.
Withholding is on line 25 of Form 1040, and any increase your make to withholding doesn't affect the amount of tax on line 16. It'll increase your refund, yes, but has no effect on the actual line 16 amount. So an increase to your withholding won't change the amount of the credit you can claim.

djorge59Author

got it

I guess I am little concern since the finance companies give 18 months to payback the credit or else your payment will increase, I was trying to figure out if adjusting the tax withholdings will make so i get the tax credit faster in fewer years

this is something they a lot of solar companies do not explain

one last question

Will i have to submit a 5695 for every year until the I get the credit back