Worth it? Am I understanding this?

Make more money. That's one sure way to have more tax liability. The withholding amount has nothing to do with the final tax liability. You certainly do not want to withhold more than necessary. That would be an interest-free loan to the feds.

That being said, it is interesting that you want to increase your tax liability to recoup that amount by the tax credit. Most people try to reduce tax liability so that they pay less tax at the end of the year.

 

I think you're confusing a "tax deduction" from a "tax credit." A tax deduction in the U.S. reduces the amount of your taxable income which is used to calculate the tax you owe. In other words, if you made $50,000 and had a tax deduction of $5,000, your tax would be computed as a per cent of $45,000 of income. Say your tax rate was 30%, then you'd owe 30% of $45,000 = $13,500 rather than 30% of $50,000 = $15,000. Hence, your $5,000 tax deduction would save you $1,500 in tax you'd have to pay.

On the other hand, a tax credit is like money you can use to pay your tax bill. For example, if like above you made $50,000 and owed 30% in taxes, that a tax bill of $15,000 which you could offset by your $5,000 tax credit and only have to pay $10,000 in taxes, saving you $5,000 in the amount of tax you'd have to pay.

The limitation, of course, is that you can use a tax credit to offset the amount of tax you owe, but if you owe less tax that the credit amount, the government (except under some unusual circumstances) will not send you a check for the unused amount of the tax credit. In other words, if you owed $3,500 in taxes and had a $5,000 tax credit, that would reduce the amount of tax you owe to zero but would not get you $1,500 in "change" for the unused amount of the credit.

There are many other complexities of U.S. tax law, but this is a simple explanation of the difference between a "tax deduction" from a "tax credit."

Disclaimer: This is meant as an illustration and not as tax advice. For tax advice, you should consult your accountant or tax advisor.

 

If your Total Tax (line 15) is $450, but your withholding (line 16) was $1500, then you overpaid (line 19) $1050, and can get that back as a refund (line 20) of $1050.

If you buy the Prime, then your refund gets boosted to the same as line 16, on track to $1500, an increase of just $450 compared to not buying the Prime.

You can change your withholding at any time simply by filing a new W4 with your employer.

But this won't change your Prime Plug-in Tax Credit situation all all. No matter what you have withheld, this tax credit just boosts your refund by $450. Changing your withholding is pointless because it gains you nothing. You are a very long ways from qualifying for the full credit of $4502.

The only reasonable way to get more of that possible tax credit, is to boost your taxable income at Line 6 (e.g. by getting more wages at Line 1) and thus have more total tax on line 15.

 

I think form W-4 let’s you control, within bounds, how much is withheld.

 

Correct. I used it recently to add extra withholding to cover some new income that doesn't withhold for me.

But of course that wouldn't help @tenortodd since, as already stated, it won't change his tax liability, just the size of his refund or bill before taking into account any tax credit for the Prime.

On the question of the state fees for hybrids, PHEVs, My records show that in my first year (over 19k miles) with the Prime I spent $376 less on gas and electricity than I would have spent on gas for a 49 mpg Prius and I spent $1,124 less than on a 28 mpg gasser.

 

As mentioned, you refile a W-4 with your job to change the amount of withholding. Of course, it isn't straight forward by using a dollar amount; you increase the number of dependents on the form to withhold less.

To owe more tax, you have to make more money, or get something taxed that wasn't before. If you have a standard IRA, you could convert it to a Roth one, and then you'll owe tax on the amount converted. talking to a financial planner might be a good idea.

Then you can always lease. The leasing company gets the tax credit, and most apply that amount to the lease terms.

 

You'd really get nailed (in states charging an extra registration fee for plug ins and pure electric), if you buy a prime, but never plug it in.

 

Fair taxation for plug-in hybrids is really tough as long as tax is collected on gasoline sales.

A conceptually-fair system would be to tax all cars by the mile, such as upon annual vehicle inspection, but I would not support that unless it’s also scaled by vehicle efficiency. The purpose of taxation is not only to raise revenue, but also to encourage Social Responsibility.

 

Fortunately, our state has no PHEV/BEV surcharge registration fees... yet. But in our region, plugging in PRIME and driving EV cost more than never plug it in. So it really depends on where you live.

 

Compared to a regular Prius, yes. But compared to a gasser, it would still be a bargain. But I have to agree that those fees on hybrids and plugins are spectacularly unjust, especially to retired people who don't drive far.

 

A devils advocate approach to this would be that in an area that has discounted car pool lanes for HOV stickers, you receive benefit.

As an example: out here in the Bay Area the car pool sticker gets me half priced bridge tolls ($3 versus $6) every trip home from work. If I do 200 trips a year that's $600 in savings I wouldn't have otherwise had.

And that's even if I don't charge the Prime.

That's what my neighbor did and worked well for him.

 

Thankfully Texas isn’t there yet either, at least not at the whole-state level.

I don’t know, but it wouldn’t surprise me if Dallas has its own PH/EV tax. I say I wouldn’t be surprised because they’re the only place I’ve lived (briefly) who charges property tax on vehicles as well as homes.

 

Our state has property tax (they call it an excise tax but it is different from the sales tax) on vehicles, boat, RV, motorcycle, etc, but nothing specific to BEV or PHEV. It is an annual tax levied and added to the annual registration fee. For a motor vehicle, it is calculated by the set percent rate for the year model and MSRP (not the sale price strictly MSRP from Monroney sticker).

 

Not relevant. What you withhold has NO BEARING on what you owe for the year.
Second time: Forget withholding. Forget the refund. Neither has ANY bearing on the total tax that you owe.

 

On the 2019 Form 1040 look at line 16, "This is your total tax." If that amount is $4502 or more, then you get the full tax credit from buying a new Prime (not from leasing). This is exactly like you get credit for an additional $4502 withheld from your pay. Your refund will be increased, or your payment owed reduced, by this amount. If your line 16 Total Tax is less than $4502, then that amount is all the credit you get. Your tax for that year would be reduced to zero, but any amount of the electric car tax credit above your total tax amount would be lost. You'll get a fat refund check. Also check state tax benefits for buying an electric car.

Withholding amounts don't relate to the tax credit, but do review that periodically. There is no legal requirement to have too much withheld. Adjust your W-4 to get the amount withheld that serves your needs. Under withholding may incur a penalty.

 

The reason for this tax is to pay for the roads though. If you believe heavy cars should pay more, most plug ins are heavier than the ICE or hybrid equivalent.

 

I absolutely understand and agree (and in fact already replied to that effect); nevertheless I’m just answering the question...

 

It’s not about how much you owe at the end of the year, it”s about your total tax federal income tax liability for the year.

 

Why does this issue continually come up? Based on your income and other factors in the tax code, you owe a certain amount of taxes for the year. The government requires that you prepay the bulk of that amount through the year, either by payroll withholding or by filing estimated tax payments. On April 15 of the following year, you settle the difference between the amount owed for the year and the amount you have prepaid, getting either a refund if you prepaid too much, or sending in a check if you didn't prepay enough.

The credit on the Prime reduces the amount you owe for the year, down to but not less than zero. You still settle based on the total amount owed (as reduced by the credit) and the amount you have prepaid.

My tax advisor once told me that he could give you any refund you wanted on April 15. But you wouldn't like the size of your take-home pay through the year.

Why is this so hard to understand? Not trying to be sarcastic; I really don't understand the confusion.

 

Because the government deliberately makes taxes hard to understand.

Instead of an easy to read statement showing what was withheld from each paycheck over the last year and what you still owe or are owed, you get a post card sized piece of paper with cryptic codes and dollar amounts on it. You have to send it to the IRS even though they already have it, and you have to tell them how much you owe even though they already know most of the details.