If you make more than $150,000/yr, the IRS will claw it back at tax time.
Getting a $7,500 tax credit for electric cars will get a lot easier : NPR
intercst
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Yep. $150k individual and $300k MFJ.
But it’s even worse than this. If you make $93k, married with 2 kids, then the IRS will claw back more than half of it (about $4,000) come tax time. That’s because this (the “clean vehicles tax credit”) is not a refundable tax credit (and the child tax credit is also a nonrefundable credit) and you only get as much credit as your total amount of taxes calculated on your 1040 form. Seems like a couple with 2 kids would have to earn at least $125k before they can benefit from the full credit. And a single would have to earn at least $70k before they can benefit from the full credit. Maybe @aj485 can comment further.
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Article: “Now, even families with no tax liability at all can get the tax credit.”
Yeah but they’d have to pay it back, right?
I suspect they’ll have to fix the child tax credit issue Mark R pointed out. The intention of the EV tax credit program certainly isn’t to reduce the child tax credit.
But in a dysfunctional Congress, who knows.
intercst
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I guess I wasn’t clear. The EV tax credit doesn’t reduce the child tax credit. If anything it’s the other way around, the child tax credit reduces the amount of taxes paid which reduces the EV tax credit. Starting Jan '24, you will receive a discount on your EV from the dealer in the amount of $7,500 (if the vehicle qualifies). Then in April '25, you will file 2024 taxes and will have a total gross taxes of, say, $7,500, then you subtract out the $4,000 child tax credit, leaving a net taxes of $3,500. That leaves $3,500 of tax remaining to get the EV tax credit. In this case, you will have to pay back $4,000 of your original $7,500 tax credit.
If they change the law then it’ll become a refundable tax credit. I don’t think that is very likely.
But now that I read the entire article, it appears that they are indeed making it a refundable tax credit and all of what I wrote above doesn’t apply anymore. As long as your AGI is under $150k (single) or $300k (MFJ) for either the previous year or the current year, then you will get the full $7,500 benefit. Or maybe the article is wrong.
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I did some further checking, and sure enough the new rules make it a refundable tax credit (in effect). So whatever I wrote above is now null and void. If you meet the income limitation, you will get the full $7,500 tax credit (if the vehicle qualifies for $7,500 of course) as a discount at time of purchase.
See the IRS FAQ (Q4) here -
Q4: What if a buyer has insufficient tax liability to fully use a transferred credit? (added October 6, 2023)
A4. The amount of the credit that the electing taxpayer elects to transfer to the eligible entity may exceed the electing taxpayer’s regular tax liability for the taxable year in which the sale occurs, and the excess, if any, is not subject to recapture from the dealer or the buyer.
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I heard about getting the tax credit at the time of purchase today while driving to an appointment and wondered about both those who didn’t have enough liability to be eligible for the entire amount the vehicle was eligible for, and those who made too much to qualify for the credit. The FAQ you posted answers both questions. Here’s the answer if you make too much:
It is interesting that they made the credit effectively refundable.
AJ
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That’s going to really upset Joe Manchin.
intercst
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Ha. So what’s the marginal tax rate for people (MFJ) who purchased an EV … on their additional income between $299,999.99 and $300,000.01? 