Expecting a $4K Federal Rebate on Your FFE? Sorry!

[musicmafia]

The $4K federal "rebate" is a deceptive advertising scam! Despite what we are told when we buy these cars, it's not a federal rebate incentive for buying cleaner energy vehicles. In reality, it is just a potential tax credit that you will only get if you plan your taxes so that you owe money at the end of the year.

 

I just completed my 2014 tax return and it said my "available credit" was $4001.00 but after my other deductions, my actual "total credit" is ZERO! Why? Simply because I had other write-offs, had withholdings and I am getting a refund. It added ZERO to my refund. Apparently the "credit" does not carry over to next year. The $4K just evaporates.

 

If you're like me and you like to plan your taxes so that you get a refund, you may not be seeing a a dime of this $4K. Had I known this I could have easily reduced my withholdings (from my own company), which would have increased my paychecks and allowed me to use the $4K credit against taxes owed (assuming you owe more than $4K at the end of the year). I'm guessing a lot of people think they are getting a tax break but in reality they are not.

 

When negotiating a purchase for a new FFE, do not assume you will automatically see a $4K "rebate". This sucks.

[murphy]

The  tax calculations need to be done well before the end of the year.  I cashed a lot of old Savings Bonds to raise my taxable income so the tax credit could offset the taxes due on the Savings Bond interest. 

[Doug0716]

It sucks that you were unprepared, but I fail to see how it's an "advertising scam".  The sales person is not a tax expert and if you don't feel comfortable doing the research yourself then a tax professional should have been contacted prior to purchasing the vehicle.

Edited April 13, 2015 at 11:43 AM by jeff_h

[lonzo71]

Ok, theres a lot of blame to go around people, like Congress, who wrote it in the first place. They could have just changed a few words and people would have gotten it no matter what, but sadly, they didnt. I didnt get it either, but I got pleanty back so I cant complain

[jeff_h]

If you're like me and you like to plan your taxes so that you get a refund, you may not be seeing a a dime of this $4K. Had I known this I could have easily reduced my withholdings (from my own company), which would have increased my paychecks and allowed me to use the $4K credit against taxes owed (assuming you owe more than $4K at the end of the year). I'm guessing a lot of people think they are getting a tax break but in reality they are not.

 

The credit does not have a relation to one's withholding amount throughout the year, it has a relation to one's tax liability after you've calculated other items on the return.  So rather than this being any type of scam, it sounds like your credit may have been nullified by other rules in the IRS tax code.

[Hybridbear]

Exactly. We didn't get a $4007 increase in rebate. We got $4007 knocked off our tax liability. We reduced our federal withholding to basically $0 for the last quarter of 2014 so that the government wouldn't get an interest-free loan of our money. Our refund was only about $2500, but we got the full benefit of the $4007 tax credit. I just reviewed our tax documents today and the way the credit for the car shows up is that you calculate your tax liability after all other deductions and credits. Then you subtract $4007 from that amount. That becomes your new tax liability. Getting a refund just means you paid more in taxes than your tax liability for the year. The EV credit doesn't guarantee you a refund.

[garymkrieg]

If I read what you are saying correctly in your initial post, I believe you are incorrect.  The $4000 "rebate" is there for the taking if your total tax amount due is over $4000, BEFORE withholding and every other deduction.  The fact that you are getting a refund does not enter the picture.  It is what did you owe in taxes before all deductions and withholding are taken.

 

Gary

[stevedebi]

I don't know, I see news stories all the time about folks getting money back from the Government when they paid no taxes, because of a tax credit. But I'm not a tax attorney or CPA!

[jeff_h]

I don't know, I see news stories all the time about folks getting money back from the Government when they paid no taxes, because of a tax credit. But I'm not a tax attorney or CPA!

 

In general terms, when a credit goes beyond what a refund would be, it is a refundable credit, and when the credit can only go as far as the refund would be and then the rest dies, that's a non-refundable credit.  The below doc link gives some more details, which would also probably be noted in the publication or instructions directly related to a given type of credit.

 

http://www.irs.gov/publications/p17/ch38.html#en_US_2014_publink1000174999

[Hybridbear]

I think some programs are called tax rebates. Then you can get it even if you don't owe taxes. A tax refund can only refund money you would otherwise owe.

[Doug0716]

Ok, theres a lot of blame to go around people, like Congress, who wrote it in the first place. They could have just changed a few words and people would have gotten it no matter what, but sadly, they didnt. I didnt get it either, but I got pleanty back so I cant complain

Unfortunately you don't get to write laws such that "people would have gotten it no matter what", instead you have to write them such that people can't find loopholes to exploit, no matter what.

[Doug0716]

I think some programs are called tax rebates. Then you can get it even if you don't owe taxes. A tax refund can only refund money you would otherwise owe.

Related:

http://www.marketplace.org/topics/your-money/getting-personal/tax-credit-and-tax-rebate

[musicmafia]

The  tax calculations need to be done well before the end of the year.  I cashed a lot of old Savings Bonds to raise my taxable income so the tax credit could offset the taxes due on the Savings Bond interest. 

you are correct...to actually receive the credit, you either have to be lucky or do some planning ahead of time....like most folks, i was completely unaware of how this worked. with my other write-offs and deductions i was already set to receive a refund and was unable to receive the credit.

[musicmafia]

Exactly. We didn't get a $4007 increase in rebate. We got $4007 knocked off our tax liability. We reduced our federal withholding to basically $0 for the last quarter of 2014 so that the government wouldn't get an interest-free loan of our money. Our refund was only about $2500, but we got the full benefit of the $4007 tax credit. I just reviewed our tax documents today and the way the credit for the car shows up is that you calculate your tax liability after all other deductions and credits. Then you subtract $4007 from that amount. That becomes your new tax liability. Getting a refund just means you paid more in taxes than your tax liability for the year. The EV credit doesn't guarantee you a refund.

 

yes that is what i am saying.....IF i had known, i could have easily reduced my withholding as you did, which would have given me more money every month and left me with a bigger tax liability so I could have received an actual benefit from the credit....

[musicmafia]

It sucks that you were unprepared, but I fail to see how it's an "advertising scam".  The sales person is not a tax expert and if you don't feel comfortable doing the research yourself then a tax professional should have been contacted prior to purchasing the vehicle.

I don't think most people feel they should have to contact a tax expert before buying a car, especially when the $4K is promoted as a "rebate" you will receive later. If car brands and dealers are going to promote these "credits" claiming to offset purchase prices, then yes, I think the very least they could do is hand you a sheet of paper explaining what it really is and how to actually get the credit....or at least direct us to information...but maybe that's too much to ask when spending almost $40K cash...I was given bad information and per my OP, was lead to believe this "rebate" would be refunded to me at tax time (as part of federal incentives to promote EV''s/PHEV's)...

[musicmafia]

My purpose of this post is so people will know that they may have to do some special tax planning (during the same year they buy their FFE) in order to receive a benefit from this credit. If you buy your car towards the end of the year as I did, you may not have much time to do this so plan ahead so you don't get burned.

[JATR4]

yes that is what i am saying.....IF i had known, i could have easily reduced my withholding as you did, which would have given me more money every month and left me with a bigger tax liability so I could have received an actual benefit from the credit....

Withholding has nothing to do with whether you get the tax credit or not.

Edited April 14, 2015 at 01:46 AM by JATR4

[musicmafia]

maybe not directly but indirectly if i had not withheld (i.e. pre-paid) all those taxes (and/or claimed my legal deductions like mortgage interest, medical, etc), i would have owed money at the end of the year and could have used the credit to offset that so it all seems relevant to me

[JATR4]

maybe not directly but indirectly if i had not withheld (i.e. pre-paid) all those taxes (and/or claimed my legal deductions like mortgage interest, medical, etc), i would have owed money at the end of the year and could have used the credit to offset that so it all seems relevant to me

You don't appear to get the idea of the vehicle credit.  You can only use the vehicle credit if you have a tax liability .  If you use deductions and other credits you may not have a tax liability--which seems to be your case.  Again, withholding has nothing to do with whether you can use the vehicle credit or not.

[musicmafia]

I guess I'm an idiot. Just posting my opinion on my experience. Forget withholding, it seems unfair that the $4K should be dangled by the car companies yet is only available in certain circumstances. At least my state just sent me a good ole fashioned rebate check. This used to be a friendly forum.

[Doug0716]

The truest friends are the ones that will tell the truth, even when it hurts.  That said, if you don't understand these tax laws/concepts then maybe you should consider working with a tax professional, especially if you run your own business.

Edited April 14, 2015 at 03:37 AM by Doug0716

[JATR4]

I guess I'm an idiot. Just posting my opinion on my experience. Forget withholding, it seems unfair that the $4K should be dangled by the car companies yet is only available in certain circumstances. At least my state just sent me a good ole fashioned rebate check. This used to be a friendly forum.

You have been a member of this forum since April of 2014.  The vehicle tax credit and the fact that the credit is limited by a filers tax liability has been discussed on this forum several times.  Several people were confused by the limiting factors.

 

The tax credit is not what we on this forum want.  We would certainly prefer a rebate.  The problem with any tax question is that it must usually be resolved before 31 December.  After 31 December there is no recovery.

 

Had you come on this forum and explained your situation before purchasing the vehicle, someone might have recommended leasing the vehicle so you could get the tax credit passed through to you by the dealer.  That is a way to get the credit without having the required tax liability.

Edited April 14, 2015 at 05:50 AM by JATR4

[Hybridbear]

yes that is what i am saying.....IF i had known, i could have easily reduced my withholding as you did, which would have given me more money every month and left me with a bigger tax liability so I could have received an actual benefit from the credit....

you are correct...to actually receive the credit, you either have to be lucky or do some planning ahead of time....like most folks, i was completely unaware of how this worked. with my other write-offs and deductions i was already set to receive a refund and was unable to receive the credit.

Your choice of words is still confusing to many of us. We understand that you're frustrated and while some posters may say "you should have known better" that doesn't help you. I think everyone here wants this to be a friendly forum. Most of us are just trying to understand so we can help you.

[stevedebi]

You don't appear to get the idea of the vehicle credit.  You can only use the vehicle credit if you have a tax liability .  If you use deductions and other credits you may not have a tax liability--which seems to be your case.  Again, withholding has nothing to do with whether you can use the vehicle credit or not.

Actually, if you decrease your withholdings so that you owe around 4K taxes, then you can claim the credit. If you have witholdings such that you want to pay little or no tax at the end of the year (as most people want), then you could end up like the OP, with no tax owed, and therefore no tax credit available for use.

 

Maybe there is a semantics issue here, but that seems to be to be a matter that invovles withholdings, and planning in advance to be able to take the credit.

[JATR4]

Actually, if you decrease your withholdings so that you owe around 4K taxes, then you can claim the credit. If you have witholdings such that you want to pay little or no tax at the end of the year (as most people want), then you could end up like the OP, with no tax owed, and therefore no tax credit available for use.

 

Maybe there is a semantics issue here, but that seems to be to be a matter that invovles withholdings, and planning in advance to be able to take the credit.

You are wrong.  Withholding has nothing to do with the credit.  If you have a tax liability of $4K and withhold $4K then you will get that $4K as a refund by using the credit.  If you withhold nothing you will owe no tax by using the credit.  Your financial status is the same in each case.

 

If your tax liability is only $2K and you withhold $4K your maximum tax credit will be $2K--your tax liability.  But you will get your withholding of $4K as a refund.

 

Again, withholding has no effect on whether you can use the credit or not.  Your tax liability determines whether and how much of the tax credit is available to you.

Edited April 14, 2015 at 05:32 PM by JATR4