Refundable v. Non-refundable tax credits: What's the difference?

[@chilieu2621]

Hello, Could you do a video on the EV non refundable tax credit for purchase/delivery before 4/18? It would be great to understand how to calculate tax liability as well. I'd appreciate it!

[@TheTaxGeek]

I've already done a video on the Federal EV tax credit for years prior to 2023. I've been waiting for the regulatory "dust" to settle before I do a full treatment on the Clean Vehicle Credit. It should be coming soon, though.

[@byubasketbal]

Thanks for the video. I’m still a bit confused about how this applies to my situation, I want to buy an EV that comes with a nonrefundable credit of $7,500. My annual income is about $140,000, so I pay more than $7,500 in federal income tax, but I’m a W2 so the taxes are withheld throughout the year. By tax season, I’m usually getting a refund of around $3k since I have a couple dependents. Since I’m getting a refund every year, will the nonrefundable tax credit have zero value to me? Or will it increase my refund? Thanks!

[@TheTaxGeek]

Since your tax liability is over $7,500, the EV credit reduces your tax liability by that amount. Since you're already had taxes withheld to cover your original tax liability without regard to the credit, you would be refunded those withholdings, so yes, taking this EV credit would increase your refund by $7,500.

[@jackherbic6048]

Say you paid taxes of $3000 and you had a non refundable tax credit of $4000 and a refundable tax credit of $1000. My understanding would be that you would get $3000 back if you paid that through the year, but I'm a bit confused on whether you would get the extra $1000 also? That is how I would think it would work, but it would depend on whether they counted the refundable or non refundable first.

[@TheTaxGeek]

If your tax liability was $3,000, the $4,000 non-refundable credit, you would get $3,000 of that credit, reducing your tax liability to $0. You would receive the $1,000 refundable credit as a refund. Your total refund would be $1,000.

[@jackherbic6048]

@@TheTaxGeek Thank You! that clears it up!

[@AE-jw7sc]

Do you get that $3000 that you paid during the year back as a refund? Or is it lost?

[@jackherbic6048]

@@AE-jw7sc Yes you would get the 3000 back with just the non refundable credit, the difference is a refundable credit can mean the govt is giving you more than you paid.

[@vahanpoghosyan1581]

hi Tax Geek, a very informative vide. I have a question though and I'd appreciate if you could answer it. Let's assume I have $8700 in total tax liability, out of that, $3100 is covered by paycheck tax withholdings and $5600 I'll owe from a different source, so will a $7500 non-refundable electric vehicle tax credit cover only that $5600 I owe, or will I also be able to receive the remaining $1900 from that $3100 withheld tax? Thank You

[@TheTaxGeek]

The non-refundable electric car credit will reduce your $8,700 tax liability to a net tax of $1,200. Your withholdings of $3,100 are applied to the net tax giving you a $1,900 refund.

[@arnhorguiamkd1518]

i have coin non refundable...not credited

[@Closetedboogieman]

😊😊😊

[@TheTaxGeek]

😃😃😃‼️