Tax Credit Question for 06 Prius

<div class='quotetop'>QUOTE(matben @ Nov 30 2006, 03:12 PM) [snapback]355979[/snapback]</div>

It doesn't give you back more than you owe or have had deducted from your payroll throughout the year (your total tax liability). So you would have to have a total tax liability of $3,100 or more to get the full benefit of the tax credit. Someone did the math and posted the result here in one of the threads, and I can't remember the income level where you are paying that much in tax ... I think its something like $35,000, but I'm not sure. Check your pay stub and see how much Federal Income Tax has been withheld; we're close enough to the end of the year for you to see how much you have been paying.

 

<div class='quotetop'>QUOTE(matben @ Nov 30 2006, 06:24 PM) [snapback]355986[/snapback]</div>

There could be a fly in the ointment. If the credit gets your taxes too low. There is something called the alternative minimum tax (AMT). I'm sure your accountant can tell you where you stand with that.

 

I'm sorry. I'm being thick. I still don't get it. I know I pay less than $3100 in taxes per year. So how will my credit work? Do I get a refund check for the whole amount I've paid in taxes this year?

 

Here is how it works.

First, you calculate your taxes. You will either owe more than $3150 or less than $3150, no matter how much or how little was withheld from your paycheck. (You're still the one paying the IRS, even if it is withheld from your paycheck, but that's another story.)

Then you calculate all other deductions from your tax owed. This could put some that were initially owing more than $3150 back under the $3150 amount.

Then you can see about the Prius tax credit.

Obviously if you still owe more than $3150, the credit will reduce your taxes by $3150. Whether or not you receive a refund or still owe the IRS depends on how much withholding or estimated tax you paid.

Unfortunately, if you owe less than $3150 your tax liability will be reduced to $0, nothing more and nothing less. You won't get any added refund check, you can't carry it into the next year, it will vanish. So those people will get somewhere within the range of a $3150 credit all the way down to $0 credit, depending on what their tax liability is.

And then, after doing all these calculations, you get to go back, redo everything and see if you owe the Alternative Minimum Tax. That should keep you busy for hours and hours.

I think you should at least be able to carry the unused credit amount forward into the next tax year, as you can with other credits, but the rules don't allow it. It seems somewhat sneaky in my opinion.

And, if you've bought the Prius after 9/30/2006 all the calculations will be $1575 instead of $3150, because the credit is reduced by 50%. Eventually the credit will be reduced to $787.50, which is 25% of $3150, and then eliminated. But that won't be for awhile.

 

Oh my. I feel like a complete imbecile. I really don't understand what you're saying. Is there no simple answer? I know I always pay less than $3150 in taxes, total, in a year. (I have a "modest" income.) Is it not possible to just say that I will get a refund check for the entire amount of taxes I've paid for the year?

 

<div class='quotetop'>QUOTE(Katz @ Dec 1 2006, 08:57 AM) [snapback]356155[/snapback]</div>

In order to get the full $3100 tax credit or tax reduction, you must have at least $3100 in tax liability or tax due. You fill out your tax form and arrive at a tax due amount. Say, your tax due amount is $2500; your $3100 credit will reduce your tax to zero; the remaining $600 disappears. Since it is a 2006 tax credit, you can't carry-over the $600 to 2007. As previously said, you have to figure your alternative minimum tax; you may owe tax there. There are many other threads on this subject.

 

yes, it is possible. if you owe less than 3150 in taxes, you will get it all back along with any amount deducted from your paycheck.

 

<div class='quotetop'>QUOTE(DaveinOlyWA @ Dec 1 2006, 10:53 AM) [snapback]356195[/snapback]</div>

Bless you, my child! That's what I thought, but the language was getting too complicated.

 

<div class='quotetop'>QUOTE(sub3marathonman @ Dec 1 2006, 10:19 AM) [snapback]356179[/snapback]</div>

I live in Connecticut, and my recent purchase of a Prius was free of Sales Tax!!! Ah, that felt good. I will be getting the $1575 Federal Tax Credit which I figure will just about bring total tax liability to zero. Now, if only my township would eliminate the annual property tax on (hybrid)automobiles, then I could become absolutey delirious.

 

Am I understanding this right?

After deductions, I pay about $4,000 per year in taxes.
However since my employer deducts out of my paycheck each month, I only pay about $50 at the end of the year.

So even thought I pay $4,000 in taxes, I won't see a nickel back?

I wish I would have been told this sooner as I could have had my employer take out less for taxes each month by way of declaring more dependents. Then at the end of the year I would have owed $4,000, and then would have been able to use my credit.

Is this correct? Am I screwed now?

 

<div class='quotetop'>QUOTE(Cheap! @ Dec 1 2006, 11:36 AM) [snapback]356335[/snapback]</div>

It is a credit toward your tax liability, not your withholdings.

If you are liable for $4,000 in taxes at the end of the year and would normally owe $50 after factoring in your withholdings, you should be receiving a refund of approximately $3,050.

 

Hi Connecticut & Cheap!
Connecticut--No sales tax! Nice! So that sort of evens out the fact that your federal income tax credit was cut in half since you bought your car after September. Cool! But CT has property tax on cars, huh? Only hybrids?! The only property taxes we have in PA are on houses & land.

I was bummed when I finally figured out that I'd get back less than the $3150, because I will have paid less than $3150 in taxes for the year. That makes my car "cost more" than I had been figuring. I had mentally deducted $3150 from the price of the car. But at least I'll get a full refund.

Cheap--Yeah, the way it was explained to me, you'll get back the full $3150 because you paid out more than that. Cool! B)

 

Can someone define what "Owed Tax" means?

To me and everyone of my coworkers that means "what remains to be paid with your tax return." Even though you have paid taxes all year long, that is now in the past and you only "owe" the remainder. General consensus in my office is you can't owe what you have already paid.

Is this wrong?

Could it mean something else? I don't see how "Owed Tax" could mean "what you already paid and what remains to be paid with your tax return." That wouldn’t make sense now would it?


<div class='quotetop'>QUOTE(Katz @ Dec 1 2006, 02:10 PM) [snapback]356356[/snapback]</div>

What a relief! I was going to call personnel and tell them to adjust my dependents from 1 to 12. So I could get a few hundred bucks back on this deal.

So I will get back a big refund check this year. Instead of owing $50 bucks, I'll get back about $3,100.00.

This Rocks!

This Car Rocks!

This Website Rocks!

And you who are reading this, ROCK!

 

<div class='quotetop'>QUOTE(Cheap! @ Dec 1 2006, 03:28 PM) [snapback]356362[/snapback]</div>

All true! Love the car. Love the tax credit. Love learning stuff about my car, & talking to other enthusiasts on this site. And I get a check from PA for $500, too!

 

<div class='quotetop'>QUOTE(Cheap! @ Dec 1 2006, 12:28 PM) [snapback]356362[/snapback]</div>

It is the figure from line 44 in Form 1040, line 28 in Form 1040A, or line 10 if you use Form 1040EZ.

 

First, the amount of the credit is $3150, not $3100 for all those who placed their car in service prior to 10/1/2006. After that the credit is reduced by half, to $1575.

It isn't complicated. There are two different terms being used by people in an apparently confusing manner.

First, your withholding amount, every paycheck, is sent to the IRS. This has no effect on your taxes. It is your money. You're just loaning it to the IRS for the year at a 0% interest rate.

Second, your tax liability. This is the important number that you must calculate at some point after 12/31/06 and before 4/15/07.

You can have a "tax liability" yet "owe nothing in taxes" if your withholding amount exceeded your tax liability. But you have already paid the tax liability in that situation. You can have a "tax liability" yet receive a "tax refund." But it is your money you're getting back that was withheld during the year.

You must figure out your tax liability first, as I said in the previous post. If it is less than $3150 your Prius tax credit will be reduced by a certain amount, gone forever and never to return, and your tax liability will end up at $0. So in that situation all the money you've allowed the IRS to withhold during the year will be returned to you.

Now this is a small technical detail, which I'm not 100% sure of, but I think that the next tax year after your $0 tax liability you can eliminate your withholding amount. It may be that you must be expecting that tax year too to have a $0 tax liability, I'm not sure. But there is a rule that you will not be charged a penalty if you've paid a certain percentage of your previous tax year's liability. So if 2006 tax year liability is $0, it seems that you don't have to have anything withheld the next year. But you must of course pay the tax liability then all at once. You will have to consult with a tax expert about these details.

Also, it is still possible to be charged a penalty even with withholding if your amount owed is greater than $500 or something like that. If you think that is going to be the situation, then you've got to be making estimated tax payments in addition to the withholding payments you're making.