I see that there are federal and state tax credit offers to buy an electric vehicle, but this is not money that will just be given to you, correct? You would have to owe $7500 in taxes to benefit from a $7500 tax credit? Or am I wrong?
In: 2
A tax credit reduces your tax liability by the amount of the credit. So for example of you make 100k, you are taxed on 100k. But if you have a 7500 credit you are only taxed as if you made 92500.
It’s a tax credit. It’s like getting a $7500 voucher that you can use to pay your taxes. If you don’t make enough to pay income tax then it’s of no benefit to you.
EDIT: fully refundable credit was part of Build Back Better plan that hasn’t yet passed
The laws actually changed in past couple years, where you can now get money back if you owe less than $7500 in total income tax. However, given the current prices of electric cars, most people who buy them owe more than $7500 in taxes (that’s a single person who makes $54,000 in taxable income). It only applies to new vehicles and almost all electric cars start at over $40k now, so they are mostly bought by higher income people.
And remember, your total taxes owed include all the money you had withheld from paychecks all year, not just what you may owe come tax time.
Latest Answers