?s about Electric Vehicle Tax Credit

The average electric car is almost $70,000 - and many can be a lot more - so I'd wager the decent percentage of electric car buyers are paying, not getting refunds. A pretty decent income is needed to purchase a $70k+ car.


Sure you could. You can adjust your withholdings at any time.

I don't think there's anything unethical - not even borderline - in proactively managing your tax liability.

I paid a little over 30K in Federal taxes this year. These are the kinds of things we want! Though we have zero plans to ad an electric vehicle to our fleet. We did get tax credits for some solar equipment we purchased a couple years ago for pumps. It tax credit greatly offset the cost of the panels, etc.

There is a difference between the amount of your refund and how much tax you owe/pay.  How much you have withheld has no impact on the calculation of your tax liability. The vehicle credit is against your liability which is not connected to your withholding. We took many of these credits as early hybrid purchasers, and I do all my taxes, so I am very clear on how this works. 

For example, let’s say that due to my salary, I owe/am liable for $15K in federal taxes (which has nothing to do with how much I choose to withhold). If my mortgage interest credit/deduction ($7500) reduces that by $7500, I can claim all $7500 in a credit for an electric vehicle and get back all of the money I had my employer withdraw from my paycheck and give to the government for my tax liability. 

If I set up my W4 to have $12K withheld for taxes, I will get all of that back. Whatever I had withheld has nothing to do with my tax liability and what credits/deductions I am entitled to. 

Now, if my tax liability based on my salary was $10K and my mortgage interest deduction is that $7500, reducing my tax liability to $2500, that is the amount I can get as a credit for an electric vehicle. And I’ll still get all that $12K withheld returned to me. I just won’t get some extra $5K magically added to my refund due to that vehicle credit. 

Withholding more money from your paycheck will have absolutely no impact on how much of the credit you will be able to apply to your taxes. Your other tax credits/deductions - mortgage interest, medical expenses, etc. - do. 

Maybe a more accessible way of thinking about it is to equate the electric vehicle credit to Kohl’s Cash that expires at the end of the week.

If you have $100 in Kohl’s cash (your vehicle tax credit), that has no impact on how much that InstantPot you want costs (your tax liability). If the InstantPot is a deluxe model that costs $159, you can use all your Kohl’s cash and only owe $59. But, if you want the $69 model, you can only use $69 worth of Kohl’s cash - you won’t get a refund for the extra $31 in Kohl’s cash.

The transaction regarding the cost of your purchase (your tax liability) and your Kohl’s cash (your vehicle tax credit) has absolutely nothing to do with how much cash you have in your wallet (whatever taxes you had withheld).

*******

Tax Liability = based on your earnings minus tax deductions/credits

Tax Withholding = whatever you have your employer withhold from your paycheck to offset what your tax liability may be. Has no impact on your tax liability or what credits and deductions you are entitled to. Think of it as however much money you withdraw from the ATM to keep in your wallet - it has no impact on how much your groceries/clothes/InstantPots cost. 

If your withholding is more than what your liability ends up being, you get a refund. If your withholding is less than your liability, you pay additional taxes. Again, your withholding has no impact on your liability, nor what tax credits you can take.