Just as a reminder and to clear some muddiness:

You cannot use the hybrid tax credit in increase your tax cash refund.

It will only allow you to "reduce the amount of tax you owe dollar for dollar" the amount of the tax credit.

For example, if you OWE the IRS $2600 at your final calculation, and you have a $2600 credit for a hybrid car, then you can PAY the IRS the $2600 with that tax credit.

What you CANNOT DO is this: At your final calcuation, the IRS OWES you $400, so then you want to get your $2600 hybrid tax credit applied and get a refund of $3,000 - that will not fly.

So it's still time to adjust your taxes so that you OWE MONEY at the end of the year and can take full advantage of the hybrid car tax credit.

See this page for a good detailed explanation:

http://www.nysscpa.org/sound_advice/money_9.11.06.htm

 

Lars, are you serious? Oh No, I have thought the Prius credit would produce a nice hefty tax refund check next year ($3150+ my usual refund). Not sure if I can adjust the federal withheld in the final 3 months of the year to make a $3150 (+ my usual refund) hole.

Anyone has experience with this? Any CPA's here?

 

This is sad news! I thought that it was a true credit, but I guess not.
I wonder if I can change my withholding tax now to incur a $2100 or greater tax bill. This was certainly NOT made clear - or at least this is a surprise to me.

Thanks, Larry, for this info.

 

Thats not quite what it means. Some people don't actually OWE any taxes at the end of the year, they have so many credits that they don't have to pay and their entire withholding is returned to them. The hybrid tax credit will not add to your credit in this case. However if you owed $4000 in taxes, and you paid $4500 in witholding through the year... Uncle sam owes you a $500 refund. But your tax bill was still $4000. The tax credit still applies. If you have a $3500 hybrid credit you new bill would be $500 and you'd get a $4000 refund.

 

Lars, after some checking you are absolutely correct. The tax credit applies only when you still owe taxes to government. Does not add to refunds.

My question now is, must I use the tax credit for tax return of the same year (if I buy in 2006, I only can use it on 2006 tax return)? Or can I use it for 2007 tax return?

That way I can owe enough tax to use the tax credit.

I checked with IRS website, no mention on how long the tax credit is good for.

Any ideas? suggestions? Answers? I was going to pick up my 2007 Prius tomorrow, but looks like I may wait until Jan. 1, 2007 now. Shoot.

 

I still think thats misleading. Non-refundable means (I believe) that you can't get extra money back more than you owe. For example if you owe $2000 and have $2500 withheld and have a hybrid that has a tax credit of $3000 you might think you'd get back $3500 (the refund of withholding +$3000 for the vehicle). What I'm pretty darn sure happens is that you only get $2000 of the credit applied to what you owe. That means your owed tax goes down to $0, you had $2500 withheld and you'll get $2500 back. I think thats all that NON-REFUNDABLE means. It still added to your refund. Incidentally the appropriate form appears to be Form 8910.

In other words if you are saying when you are owed a refund because you had too much withheld, you get no Hybrid Tax credit, I think you are wrong as far as I can tell. Adjusting your withholding to make sure you have a balance due at the end of the year isn't necessary. If you are saying with all your other credits you actually owe $0 before witholding--then yes you don't get a tax credit.

Maybe thats what you meant.... but it seemed confusing.

 

LARS, your posting cause an alarm for me. So I just gone through an IRS 1040 with an account friend, and we think in the example you use, one will get a $3000 refund check, IF he has $3000 or more in tax withheld.

Here is a 1040 form (sorry for a long posting, but hope to clear the air, and alleviate some buyers remorse)

http://www.irs.gov/pub/irs-pdf/f1040.pdf

Page 1 of 1040, pretty simple, you sum up all your income.
On page 2 of 1040.
Line 43: Your taxable income (total income minus std/itemized deductions)
Line 44: Your tax (without taking into account your tax credits/withhelds)
Line 45: Your Alternative Minimum Tax.
Line 46: Line 44+ Line 45
Line 47-55: Your tax credits (hybrid tax credit goes on line 55)
Line 56: Sum of Line 47 to 55
Line 57: Your tax (after deducting tax credits, but still not taking into account your tax withheld)

What IRS is saying is, if your total tax credits (line 56) exceeds your tax (Line 44), the government will not owe you any money. For example, if you are a retiree, your tax is $ 150, and you got a Prius with $3150 tax credit, your tax is not -$3000 (the government does not owe you $ 3000).

And you must apply other forms of tax credits (child, etc.), before applying the hybrid credits against your tax obligations.

But keep going down the form.

Line 58-62: Other taxes (mainly for self-employed or biz owners)
Line 63: Sum of Line 58-62, plus Line 57. This is your total tax.

Line 64: Your withheld (on W-2). This is the money government already taken from you, directly from paycheck.
Line 65-70: Other tax prepayments (such as tax refunds from past years)
Line 71: Sum of Line 64-70. This is the amount of taxes you already paid, either from payroll deduction/tax withheld, or other forms of pre-payments.

LINE 72: Amount you over paid, Line 71 minus Line 63.
Line 73: Refunds (for most of us it is same as line 72)

Since most of us have tax withheld greater than the hybrid tax credit ($3150), we should still see most of it (if not all of it). Here is an example working man.

Line 43 (taxable income): $ 50K (your income - all the deductions)
Line 44 (tax, assuming 25% bracket): $ 12.5K
Line 45 (AMT): None
Line 56 (total Tax credits): $ 3150 (you bought a Prius, no kids, etc.)
Line 57: $ 12.5K - $ 3.15K = $ 9.35K (tax minus tax credits)
Line 58-62, (self-employed taxes): None
Line 63 (Total tax, sum Line 57 to 62): $ 9.35K

Line 64 (tax withheld, from payroll deduction): $ 14 K (you already paid)
Line 65-70 (other tax prepayment): None
Line 71: $ 14K + none = $ 14K (you already paid government this)

Line 72 (so amount you over paid): $ 14K - 9.35K = $ 4.65K
Line 73 (refund you want): $ 4,650

You will get your Hybrid tax credit back, as long as you have enough tax withheld (from paychecks) to cover the tax credits, plus whatever refunds you should get with your mortgage interests, dependents, etc..

For that retiree, his tax is 0 ($ 150 tax - $ 3150 tax credit = $ 0 tax), so depending on his withheld, he will get all his withheld back too. But remember, that $ 3150 goes against his tax (of $ 150), does not add to his withheld.

So for most of us working stiffs (working for someone), and have money sucked out by government every paycheck, we should all probably see something back, including parts (if not all) of the hybrid tax credits.

LARS thanks for highlighting this issue for me. I would have never gone through a 1040 this carefully if it wasn't for your posting. Thanks.

And hope my explaination helps.

 

Teester, you are right on the money (your example). I just thought to clarify things by walking through a 1040 form. CK

 

Thanks... the earlier posts had me a bit confused.

 

I cannot find one single web page anywhere which disagrees with the "non-refundable credit" scenario I posted yesterday. Here's another one from bankrate.com:

If someone can find a page that says differently, I'd be interested in reading it.

In the meantime, I have reduced the amount of tax my employer is pulling from my pay until the situation is resolved in my mind.