The renowned (or infamous) tax credit

<div class='quotetop'>QUOTE(SandMtn @ Aug 27 2006, 09:09 AM) [snapback]310158[/snapback]</div>

You won't zero out tax, you'll just get a refund. By all means adjust your W-4, but, basically,as long as your're earning money this year, and your credit is less than your tax, you'll get a refund.

 

As always, confirm things with your accountant or the IRS, but I seem to recall that:

(1) Tax credit overages carry from year to year, so you shouldn't miss out on your credit.
(2) You can tweak your withholding to whatever you want. However, if you don't withhold a certain percentage (I recall it is something like 90 to 95 percent), you will pay a penalty. Since the tax credit is a predictable amount, you can probably safely trim your withholdings. The government doesn't mind you paying too much withholding however .

 

You know, with only one quarter left in the year, I'd leave your withholdings alone.

Do you get the full credit if you take delivery in September? If you do, the credit will be worth $3,150, but only if you're not subject to an over-riding amount from the Alternative Minimum Tax. If you paid AMT last year, or came close to it, it might not be worth trimming your withholding if you don't actually take advantage of the credit.

I always hate to see that I get money back, because I know I would have used it better than the non-interest-bearing "Federal Withholding system", but I hate even more to end up paying more tax at the end of the year. Writing that check just galls me no end!

 

<div class='quotetop'>QUOTE(lindac @ Aug 27 2006, 01:51 PM) [snapback]310180[/snapback]</div>

The tax credit available with the purchase of a new Prius is a non-refundable tax credit, which means you don't get any additional refund from the credit. It takes away from the money you owe, it doesn't give you any extra money back.

This article at about.com has some good info:
http://taxes.about.com/od/deductionscredit...taxcredit_2.htm

 

<div class='quotetop'>QUOTE(M. Knight @ Aug 28 2006, 11:09 AM) [snapback]310565[/snapback]</div>

What he means is, you won't get refunded past 0$. However, if you've had taxes deducted from your paycheck, then you can (and will) get those refunded, up to the maximum amount you can (given TMT and AMT, etc... see the other threads on it). so, for example, if your employer withheld 3151 in taxes, you have no credits or deductions to claim, and have a TMT of 0, you'll get a refund check of 3150. However, if they only withheld 2500, once again with no credits, deductions, and a TMT of 0, you'll only be able to get the 2500 refunded (and you'll forever lose the other 650 of the hybrid credit). Things get much more complicated in real life, of course, with all the other potential credits and deductions, calculating AMT and TMT, etc.

 

<div class='quotetop'>QUOTE(SandMtn @ Aug 28 2006, 10:24 PM) [snapback]310944[/snapback]</div>

tax credits for the Prius do not carry over to a future year! It's now or never.

The witholding amount has nothing to do with the tax credit. You will not lose your credit of you mess up your witholding amount, unless you are severely UNDERPAYING (the opposite in your case) your taxes, making you subject to an IRS penalty.

The real danger with the tax code that may cause you to lose part or all of your credit is your calculated AMT amount. If your calculated AMT liability is at least $3150 *less* than your standard tax bill, you will get the full credit. If not, your credit will be limited to the difference between your calcualted AMT and standard tax amounts. If your AMT is more than your standard tax, you're shite out of luck. The key to the getting the best outcome is to maximize common deductions such as FSAs, mortgage interest and retirement accounts and minimize deductions like dependent care, charitable contributions and OTHER tax credits. The former type you can also deduct in your AMT calculation (good!) but the latter you may not be able (bad!) because it will shrink the calculated gap between your AMT and standard tax amount.

Of course if your houselhold makes less than 70k a year, you can pretty much ignore the hoop jumping above, your should be okay to receive the refund from the credit.

 

Listen up, Sparky -- I'm going to make this very simple. (I did this for my '05 - and I have an accountant.)
As of right now, you'll get $2,000 taken off of your TAXABLE INCOME on the IRS form, and then you don't have to pay taxes on that income. (The 2,000 is an income deduction, not a tax deduction.) As far as your total tax bill is concerned, you just earned $2,000 less this year. So, you don't have to pay taxes on the $2,000 you 'didn't earn'.
Now, if you can refrain from dinking around with your almost-to-the-dollar plan that's been so diligently put in place, that means you'll get a check from the US Treasury for a little over $500 next spring (assuming you're in a 27% tax bracket).
It's all perfectly legal and ethical, and simple to boot. There is an extra form to fill out, and you'll need the receipt from the car. If you're clever, you'll do something much more constructive with the $500 than use it for a car payment.
And, again, 'as of right now' means that President Bush has repeatedly tried to get the deduction revoked or limited, and is on track to do so. The latest gimmick is to cut off the refund after about 2/3 million cars are sold. Will somebody please 'explain it to him?

 

<div class='quotetop'>QUOTE(chazman @ Sep 2 2006, 05:19 PM) [snapback]313173[/snapback]</div>

Wrong, wrong, wrong!

chazman, this was correct for your 2005. HOWEVER, there is no longer a tax deduction (which is what you were explaining). Starting in 2006, it is a tax credit.

SandMtn, others in this thread have explained it pretty well. Assuming that you're not subject to the AMT, read on for the condensed version.

Essentially, if your tax liability (X) this year, after all deductions and such was greater than 3150, you subtract the credit and only owe X-3150. (and your refund will be equal to your withholdings minus your tax liablity) So, it depends how much you had withheld, and what your tax owed is (which is where the 3150 comes in) to find out whether you'll get the full value of the credit. But to understand whether you'll be affected by the AMT, see the other posts, or, better, talk to an accountant.

 

So glad to see someone with four posts comment so forcefully yet be so wrong ... out of date is more like it (old tax deduction vs. new tax credit). LOL!