Hello I have been considering a Prius Prime due to the lucrative FTC incentive but from what I understand, unless I owe federal income tax, the credit will not apply to me, correct? My wife and I normally break even when we file taxes, but sometimes we owe but not much. By "not much" I mean only $200-300. It does not sound like we would benefit from the FTC, am I right? Any info would be appreciated, thanks.
The tax credit covers your tax liability before your withholdings are applied. Your withholdings will be applied after your tax credit is applied to your tax liability. To get the full tax credit, you need to make sure your tax liability is at least $4502. If it is less, your tax credit will be the same amount as your tax liability. #1 in Easley,SC
As an example, if you owe $5002 in taxes before you subtract your withholding from your income (which is, say $1000). $5002(owe)-$4502(credit)-$1000(withholding)= $502 refund. Hope this helps. Whoops: 5002-4502-1000=500 refund. Sorry, long day.
This is the common confusion between "taxes owed" and "payments/refunds at filing time". Your tax liability for the year is a certain amount, and you have to pay against that throughout the year with payroll withholding or estimated payments, and it is all reconciled when you file (more payment, or get a refund). The $4502 credit reduces your tax liability (but not to less than zero). Then subtract your payments during the year. If negative, that is your refund; if positive that is what you have to pay.
Pull out your 2016 form 1040. Look at line 47. That is your tax liability. The tax credit will reduce that by the amount of the credit, but not below zero. If line 47 was more than $4502, then you get the full benefit of the credit, maybe a refund that much greater. Or maybe line 63 is the one the credit will apply to if the amount on line 63 is greater than the amount on line 47. Your tax pro or tax software knows the answers. We have to assume that the 2017 form will be very similar to 2016, and the credit, if still valid, will apply the same way.
Probably fair to say, if you are buying a Prime, most likely you are in a high enough tax bracket to benefit from the tax credit. Unless you are so wealthy that you have so many tax shelters that you are able to escape taxes, but if that was the case, you probably would not be asking.
Thanks, this makes a lot more sense now. I checked and our tax liability is more than the FTC. I will confirm with our accountant to see if he thinks we would possibly get a kickback from buying one.
A kickback is a illegal payment made in response to a illegal favor done. I don’t think the IRS ever participates in kickbacks.
Some people who are self employed but not particularly wealthy set themselves up as corporations, and arrange for their major expenses to be paid by the corporation as a business expense. They thus can have a comfortable lifestyle, and yet have a very low personal tax obligation, and thus not be able to use the federal EV tax credit. Also, some kinds of retirement/disability incomes are tax-free, so they likewise may have a respectable income with little or no tax obligations.
He said Federal Tax Credit and he is from California. How does the state tax credit work. I am not from California but thought I would ask.
In California, the state provides a rebate in the form of a check you receive in the mail. One can apply for this right after you buy the car, and it comes in a couple of weeks. This is different from, and in addition to, the federal tax credit, which is applied on your federal tax return. Some states have rebates, some have state tax credits, some have nothing at all.
NO. But a common misunderstanding. There was another almost identical thread within the past couple of weeks. The tax credit applies against your TOTAL TAX LIABILITY. The fact that you "pre-pay" part of what you owe has no bearing on it. The credit goes against what you would have to pay if nothing was with-held during the year.
Just to clarify, if for example, my tax for the year is $5000 and I paid $5500 in tax, my federal refund would be $500. But if I bought a Prime in California during the year, then in the above scenario my federal tax refund would be $5002? So, it's not that I have to figure out a way to not pay taxes during the year and therefore need to owe $4502 at tax time to get to use the Federal tax credit, right? I just go about life normally and pay taxes normally, right? Just wanted to make sure I understood the federal tax credit on the Prime correctly, since I wouldn't want to make an expensive mistake. Thanks.
Right, just go along with your life. In your example, you'll get $5002 back when you file your taxes.
