$3100 Prius tax credit question.

It has nothing to do with the refund you normally get. A tax credit reduces your tax liability, which is the amount the government says you owe based on your overall income.

Yes, Kiloran, DHonzik, etc are correct. The hybrid credit is called a non-refundable tax credit, which means you don't get a refund that is more than your tax liability.

It's because of this that I decided to get my Prius this year. Adding my other deductions with the $2,000 deduction for this year, I figured I would get back about $400 less than I would have by waiting until '06. I've already saved that much in gas!!!

 

I think you are confused.
A refund is the difference between your tax burden and taxes collected.
Taxes collected has nothing to do with the credit.
If your tax burden is $4000 and you had $8000 collected your refund would be $4000 because you paid in $4000 too much.
That's a refund. Your tax burden is $4000 whether you paid in $8000, $4000, or $2000.

In the case of the credit, if your tax burden is $3150 and your AMT is $0 your tax burden would be reduced to $0 (given the estimated credit of $3150 is accurate).

 

I'm not sure I understand this. A refund or payment is just amount of taxes overpaid or underpaid. It has no impact on this. What is key here seems to be the total taxes you paid.

If you make $50,000 and paid $14,000 in taxes, but owed $15,000, you have to pay the IRS $1000. The tax credit would bring your taxes down to about $12,000 and you would get a $2000 refund.

 

Correct...finally someone understands

 

Me always confused. :blink:

 

Thanks...been doing my own taxes for 10 years.

Bottom line is, I think there would be something of a mild uproar in this country if people were having their 17 year old's buy a Prius, so they could get a $3000 check from Uncle Sam. The EIC and Child Tax Credit are essentially a form of welfare for low income families.

 

I hear what your saying......
So do you mean to tell me that if I claim maxmium withholdings on my W-2 and only paid in 100.00 bucks, that I only get back 100.00 bucks?

Yet if if I choose to claim "zero" on my W-2 and paid in 3100.00 then I would get the full refund back?

That gives me manipulative power over uncle sam based on what I claim on my W-2?
that doesn't even make sense?

 

Actually, if you pay too little in federal income tax on your paycheck (say $100 for the full year) and at the end of the year you discover that your tax liability was over $1,000...you could trigger estimated tax payments during the following year. Uncle Sam wants your money now.

 

Sorry, Uncle Sam isn't that dumb. Firstly, if you owe the government more than $1000, you get smacked with penalties.

More importantly, it doesn't matter one lick how much you withhold. It's what you OWE at the end of the year. So if you only paid $100 in taxes, but owed $10,000, you better come up with a check for $9900 plus penalties and interest.

If you pay $3100 in taxes but owe $100, you get a refund for $3000. But you will only get a $100 credit for a prius. The government will love you though for giving them that interest free loan.

Ignore refunds and payments. At the end of the year, the government says you owe us X dollars, how much of that did you pay us.

 

Unfortunatley.. your article makes sense to me... its not about what you pay in on your W-2.. thats irrelevant... that is a figure you recon with after you do your taxes.

What matters is your tax liability... Tax credits reduce your tax liability! and the other disturbing part is from this site: http://taxes.about.com/od/preparingyourtaxes/a/1040step7.htm
It states:

And based on that.. you can't carry it over either:

.

So it sounds like the bad news is that if you didn't pay enough in to gain a tax liability, then you get nothing. If you did have a liability, then you only get back up to your liability amount up to the maximum of the prius credit of 3100.00.

So there are no incentives to buy from uncle sam for those people... neither the deductions of 05, or the credit from 06.. if you don't have a tax liablility, then your SOL. Merry Christmas!

I know some must be saying.. why get back from the tax payers something you never paid in?.. true, but not paying what you owe is the same thing... you take away from the taxpayers what they would have had to spend?
So a credit is not a credit per se.. .. its only a credit off your liability!.. big difference!

 

Funny!.. so is Estimated tax payments considered a liability and so you would at least get 1000.00 out of uncle sam!... that would be even better!.... Wouldn't that be a peach?

Sounds like they want your cake and eat thiers too!

 

To get the credit, you have to Owe, not nessacerily have Paid. I believe, I'm not sure, most tax breaks are meant to be incentives for people to spend or invest money and they direct these breaks to people with disposable income. It's always a contentious political argument, put more money into the hands of people who'll spend it on cars, capital equipment, investments or put it into the hands of people who need food, clothing and housing.

 

yea... I think you've got the structure down pretty good!

Thats why if we went to a flat tax of 10%..we would have more money than we knew what to do with!.. but Uncle Sam would lose his leverage to manipulate the public and many many businesses would go out of business! because they are used to paying no taxes at all!
It would be a very interesting government to see what would happen without governmental influence..... either your profitable or your not... you couldn't write off your expenses you spend in the act of making money... it would be very simple and pure!... too bad it would collaspe our economic system!... we would have to do it over many years to pull it off!

But the ones that would hurt the most are the ones that make the system work in the first place... like you said makers of cars, capital equipment, investments.. the engines of our economic world!

It would be nice if they all pulled their own weight and would simply go out of business if they could not be profitable without their deductions, but instead, the poor and the middleclass make it work for the big business....
its a form of sick co-dependency..... they need us and we need them!

Power, politics, and crime..... what society doesn't have it?

As sick as it is, it works!... sure looks there should be a better way!

 

well dont that suck... so the tax credit for the Prius is not a tax credit at all...of course you would also have to consider that not many would be buying a Prius who paid in less than $3100...of course except for the people who could least afford to lose the credit, like the elderly on a fixed income who had money set aside for a purchase like this one.

i guess a tax deduction would be the way to go... aint worth the wait for some

 

Well I can think of a few... many retired folks could afford it, that have no income to speak of, or someone who spent most of the year off sick or injured or jobless, yet has assets.

Like most laws, they never fill in all the cracks and many good folks get left out... thats why I get intolerant of those to like to be religious and hide behind staunce laws... they forget "we" made the laws for man... not man for the law!

 

You have to go out and make money in 2006 & pay your taxes as you go. You really need to make enough income to be liable for at least 3100 in taxes to Uncle Sam to benefit from the entire Hybrid Credit. If at the end of 06, your tax liability is say, 1500, Then your Hybrid Tax Credit is only worth 1500 to you. (Credit is good for only what you are liable for) You then would get refunded only what you paid Uncle Sam from your wages in 06. The rest of the Hybrid Tax Credit would just go away.


You have to make it to get it!

 

That's what I figured. I always get money back so I won't get any credit at all.

 

If you have your last year's 1040, take a look of line 62 on page 2. That's your total tax liability to IRS for the year 2004.

 

There still seems to be some confusion of over the tax liabiltiy versus refund question.

Let's look at a simple example. Say there are two guys that each make $50,000 a year. They do their taxes, take the standard deduction, etc. and uncle sam says they each owe $5000 in taxes for the year (as Clar said. line 62 on the 1040).

Let's say Guy A had only $4000 withheld (1040, line 70) during the year. He under withheld. Then at tax time he owes $1000.

Guy B had $7000 withheld during the year. He over withheld. At tax time he will get a refund of $2000.

One guy has to pay and one gets a refund.
Both guys have the same tax liability, $5000. Tax liability is the key for the credit.

The only difference is how much each guy had withheld from his paycheck. And you can control the withholding. You, within limits, determine whether you pay or get a refund at tax time.

BTW: If Guy A buys a Prius next year, he will get a credit of $3150, which essentially reduces his $5000 tax liability by $3150, so he only really owes $1850 (5000-3150).
He already gave uncle sam $4000, so, instead of paying $1000, he will now get a refund of $2150 (4000-1850).

Using the same logic Guy B will increase his refund to $5150.

Bottom line, so to speak. If you show a tax liability of $3150 or more on the 1040, line 62, then you can use all of the credit to lower your tax liability. If line 62 is less than $3150 then you only get a credit for the amount on line 62.

It's late, somebody let me know if I messed anything up. :blink:

 

I think ya'll need to forget about what is taken out of your paychecks each month. That doesn't effect your prius tax credit.

If you made 100,000 in 2006, you would owe about 20,000 to the IRS.

with the tax credit from your prius, you now owe them 16850.

Now... take a look at what you paid in... if it was more than 16850, you get a refund. If it was less than 16850, you still need to pay. Your tax liability after considering the hybrid tax credit is 16850.


Along the same lines.. If you are retired, you have 250,000 in the bank and you are collecting 500 a month in social security and have another 500 a month in interest off of your nest egg, you made 12,000 in 2006.

On an income of 12,000, I would guess your tax liability would be low (250 bucks for example). Now, subtract off your Prius tax credit and you get to the dilema. Does your tax liability go to 0, or is your tax liability -2900?

I believe that the tax credit plan puts you at 0, rather than a free wad of cash from the government. In this case, the tax credit plan is not that great for you. This brings up the point of a 17% flat tax for everyone. Get rid of the credits for mothers with 1 kid and a stray poodle, writing off your hummer, etc.. Make it flat for everyone and then if you make more, you pay more.