How does the $2500 federal rebate work?

It is not a rebate, it's a separate $2500 deduction off your 2012 taxes.

 

I believe it is a credit rather than a deduction or rebate.

If you can adjust your federal income tax withholding for the remainder of the year, you don't have to wait until you file your tax return to start receiving the credit.

If you don't have enough annual tax liability, over $2500, you might not be able to claim the full amount of the credit.

 

But, this credit is not receivable from the US Govt in the form of Cash. If your total deductions were 2500 then the 2500 credit would simply bring one to, no tax owed.

 

if your tax liability was 2500 then no tax owed.

 

Look at what your normal tax bill is every year and take $2500 off of it. That's what a tax credit is. You get the full amount dollar for dollar. It's pretty sweet actually.

A deduction (such as the interest on your mortgage) lowers your tax bill, but not dollar for dollar.

If you are a 1099 kind of person, just avoid paying $2500 on your estimates.

I am split 1099 and W2 (teacher's income), so the taxes I pay on my W2's will more than cover what I will owe in taxes for the year with this $2500 tax credit.

 

Correct

 

As everyone said above, it's a very nice tax credit off the amount of tax owed, and it is "automatic" unless you do not owe any taxes (the so-called 47%). In which case lease may help you realize the credit indirectly.

If you go back into ancient history (2006) the original hybrid tax credit for Prius Hybrid was a mess. It forced everyone to do the AMT tax calc, and you could only take the $3150 Prius tax credit if IRS thought your income was low enough to deserve it, and many here lost some of that credit including me. That was such a huge mess that Congress designed all future credits (Cash for Clunkers, EV/Plug-in credits) to be bona fide credits for everyone. Now no matter how well-off you are, you can buy a Fisker Karma at $110,000 and get the federal tax credit. There is still the requirement you have to owe some tax to take the credit.

 

The federal tax credit for PiP applies until 200,000 Toyota vehicles sold (I believe) which at the moment is many years away, as sales rates for plug-ins are not yet too brisk. (Back in 2006, the hybrid credit only applied for the first 50000 vehicles which for Prius HEV this was a short fuse. But no problem now.)

 

Hmm... I am trying to keep this non-political, but doesn't this mean that 47% of the people in the U.S. cannot take advantage of the $2500 tax credit, since they owe no federal income tax to apply the $2500 against? The law specifically says that the credit cannot be more than your tax liability, so if your tax liability is $0....

I really have trouble getting my mind around that 47% number. My son has has a part-time job in college, and he ends up owing some federal tax at the end of the year.

 

As I understand it, you can take the credit up to the amount of tax owed. So someone with a federal tax liability of only $1000, for example, would get only that amount of the credit, and lose the benefit of the balance, as it cannot be carried forward to another tax year. OTOH, if you owe $2600, the credit reduces your tax bill to only $100.
I think the 47% (or 46%) was supposed to include all people receiving some sort of $$ from the government, including Social Security, which some of us pay taxes on, based on other income. It's a political football, not necessarily the truth, the whole truth, and nothing but the truth, but rather audience-targeted.

 

I don't think it includes all the "federal taxes" like FICA and SS, just your income tax liability. I may be wrong, so check with a tax specialist if your close.

If you don't have enough tax liability, you can lease instead and get some of the credit indirectly through the leasing company.

 

...I only mentioned the 47% for creative writing reasons.
If I get a chance I will see how TurboTax handles it. But I don't think you can get out of SS tax?
Again, lease makes sense for the 47% because that way you have a chance to get the tax credit indirectly.
Believe there is a move afoot by the pro-EV side to change the credit to a rebate so it is automatic for all people. So far that effort has failed.

 

I was referring to folks drawing SS benefits, and paying income tax on a portion of those benefits, based on earnings from other sources. If you're drawing a paycheck, you are most likely paying FICA (Social Security) among the taxes withheld from that paycheck. If you're self-employed, you pay FICA along with your income taxes.

 

OK I used my mother's tax return for aTurbo Tax check.
She has a combo of pension + SS + interest from CD's. No earned income.
TurboTax gave me $0 tax bill when she bought a hypothetical 2011 PiP.
For a minute there TurboTax challenged me due to my fake PiP VIN no. entry, but turns out any valid VIN works in TurboTax (used my 2009 VW vin).

PS- ...being self-employed I know only too well FICA is 16% to Uncle Sam before I even start paying income tax

 

He owes federal income tax for the year. Not just the SS/Medicare that came out of his paycheck. This was the first year he didn't get back all of his withholding, and he wasn't that happy about it.

The $2500 credit is specifically against federal income tax. SS or Medicare or any other tax does not count. But unlike a similar previous program, the Alternative Minimum Tax does not kill it.

wjtracy, did your test tax check for your mother show a balance due of $0 after the hypothetical $2500 credit, or would it have been $0 even without the credit?

 

....in real life she owed less than, but close to $2500. Some of her income tax is due to a portion of her SS income which is reported as income, along with the interest and pension.

 

One has to have enough taxable income to create a Federal liability of $2500. From the 2011 1040 Instructions:

The income shown on Line 43 must be $19500-$19550 for a single person to have a liability of $2504.

It doesn't matter how much is withheld. Withholding is the prepayment of the tax, not the tax liability.