EV, clean vehicle tax credit
Hello all.
Last year we prepaid around $13000 in estimated tax, at the end of the year we owed $159.
This year we are doing the same. However we just bought an EV and can receive $7500 in tax credit. The dealer has filed form 15400 and we have a copy.
I read this online "The credit is nonrefundable, which means it can lower or eliminate your tax liability, but you won't get any overage of the credit refunded once your liability hits zero" I am trying to understand that. Does that mean I should not pay in advance for estimated taxes for 2025?
Thank you.
Comments
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Thank you for joining our community, Steve.
You are correct, this credit is a nonrefundable credit in that it can reduce your tax liability to zero, but not beyond (creating a refund by itself). The straight answer is it depends on what result you want on your 2025 tax return. Estimated tax payments are taken into account after your tax liability has been settled. Meaning, if you were to pay estimated taxes of $13,000 this year, and buy/apply the clean vehicle tax credit, you could be looking at an IRS refund of $7,500. However, if you wanted to get closer to owing $0, you could pay less in estimated taxes by the expected credit of $7,500.
We publish the 2025 new FreeTaxUSA software sometime in December so that you can make these estimated changes to get a more precise estimate to make the best decision regarding how much you want to prepay your taxes.
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Thank you Cory. At least the decision is either have a $7500 refund or reduce our estimated quarterly payments. I was concerned I would lose that $7500, so all is good.
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The important distinction is between your total tax liability and the amount you have already paid through estimated payments. The $7,500 EV credit can reduce your tax liability, but it does not reduce or erase estimated payments you have already made. If the credit brings your final liability down, continuing to make the same payments could simply result in a larger refund.
If the goal is to get closer to breaking even at tax time, it may make sense to recalculate your quarterly payments after accounting for the EV credit, withholding, and any other credits or deductions. I’d also make sure the vehicle qualifies and that the dealer’s Form 15400 information is correct before changing the payment schedule.
For anyone dealing with federal tax filings and trying to keep different IRS requirements straight, learn more can also be useful for checking Form 2290-related information. That is separate from the EV credit, but keeping each tax obligation organized can prevent confusion.
The safest approach is to estimate your actual 2025 tax liability after applying the credit and then determine how much needs to be covered through withholding and estimated payments. If your calculation shows that the credit will substantially reduce what you owe, you may not need to prepay as much as you did last year.
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