EV tax credit not applying to tax liability

Options
Gerald_MaGoog
Gerald_MaGoog Member Newcomer
edited April 5 in Credits/Deductions

Hello,

After entering in my income & general deductions, I still owe a few thousand dollars to the IRS. I then entered in my Clean Vehicle Credit information (I purchased an EV with the $7,500 qualification in 2023). I ran through the prompts and saved the info, yet nothing changed with my tax liability amount. Am I missing something?

I am self-employed, but I don't believe that makes a difference.

I make less than $100k a year and do not use the vehicle for business, so I know I'm within the boundaries for the credit. When I review my complete return summary, it shows the credit has applied (about $4,100 of it - not $7,500), but my amount owed did not change. I even deleted the vehicle completely and the amount I owe still doesn't change. What am I not seeing / doing wrong?

Tagged:

Best Answer

  • KristineS
    KristineS FreeTaxUSA Agent
    Answer ✓
    Options

    Hi Gerald_MaGoog,

    Credit for EV vehicles is applied to income tax to reduce that tax to zero.

    The credit is not applied to self-employment tax.

    If you look at lines 16 - 21 on Form 1040, you will see how the portion of your EV credit was applied ($4100) to lower your tax on line 16, to $0 or whatever remainder income tax is due on line 22. From there, line 23 is your self-employment tax being added.

    Without knowing the rest of the information on your tax return, if your tax was reduced to zero on line 22 after applying EV credit and other applicable credits, the self-employment tax remains, and this is why the amount owed did not change.

Answers

  • Gerald_MaGoog
    Gerald_MaGoog Member Newcomer
    Options

    Thank you for your quick reply, Kristine!

    I had not idea that credits like this cannot be applied to self-employment tax - what a huge bummer & surprise this is to people like me who missed this language in the fine print. Due to my self-employment being my only source of income (other than very small interest payments), this explains why my tax liability is not changing with the addition of the Clean Vehicle Credit. Guess I should've waited until 2024 and have received the credit upfront with no tax determinations involved. Then again, this new credit method wasn't established when I bought the car in late 2023. 😞

    Thank you for helping me with this, though!