Even that doesn't say I'm wrong. Your "tax liability" is what you owe.... not whats left after withholding.

 

A guy on PriusChat said this:

Still looking for a page which says differently...

 

Again... I think you are misinterpreting what is meant by tax "owed" and tax "liability". These refer to the amount of money uncle sam wants from you....and have nothing to do with how much you withheld. If you have a tax due of $4000 and have had $3500 withheld you still OWED and were liable for $4000, you just paid $3500 up front as withholding against the $4000 tax liability.

It is true that most credits can't reduce that tax liability below $0 (except the two mentioned). However withholding is (I'm pretty sure) irrelevant.

Call up the IRS and check for sure. They have a hotline on their website.

 

Yet another page which says the hybrid tax credit is in the non-refundable class:

Still looking for clarification by anyone - I might call the IRS if I have time, but still Googling.....

 

Finally found a Blog done by a CPA.

http://glgcpa.blogspot.com/2006_07_0...a_archive.html

She says:

 

None of that contradicts what I'm saying though... so we still don't have a resolution. Tax liability is not Taxes-Witholding as far as I know, Its just how much you owed before the withholding.

 

I am with Teester here. Tax liability is the amount you owe government, base on your taxable income, minus any applicable tax credits, without considering your tax withholding.

Using Larry's (LARS) original example, if your tax (base on taxable income) is $400, and you bought a Prius ($3150 credit), your tax liability is now zero, because $ 400-$3150 = $ 0, base on government's math.

What IRS is saying, you cannot have negative tax. If your tax credit > your tax, you tax liability is ZERO, and the government does not owe you money just because your tax credit > your tax. This is why this tax credit is "NON-REFUNDABLE". Government does not refund any unused credits, and the credits must be used in 1 year.

But if your tax is $5000 (base on your taxable income), and you got the same Prius, your tax liability now is $ 5000-$3150 = $ 1850.

After you figure out your tax liability, then you compare it to your tax withholding. If you have more withholding than tax liability, you get REFUNDS. If your withholding is less than tax liability, then you have to pay. And if you have no withholdings (self-employed for example), you owe the government $ 1850, but this is much better than owe $5000.

Hybrid tax credit will help anyone whose tax (base on taxable income) exceed the hybrid tax credit amount. But it will not help people with low tax (retirees, low wage earners, people with lots of dependents, etc.).

So contrary to what most hybrid haters think, this tax credit is not government giving people money to buy hybrids. It is government giving us a discount on our taxes to buy hybrids. Our government is not giving money away. It is simply taking less. Understand the difference?

 

Your "withholding" amount is completely relevant to this topic because it does the same thing as a tax credit - it "pays down" the amount of tax you OWE the IRS.

My example is this:

If I "owe" the IRS $7,000 in taxes for the year, and my withholding amount (the amount of federal tax I paid for the year through my employer) was only $5,000, then I "owe" the IRS $2,000 more for the tax year. My Hybrid Tax credit is THEN applied dollar for dollar to that $2000 I still owe. So I will then have paid them all I owe, using the hybrid tax credit of $2,600 I get for the TCH I bought.

The other $600 is "lost" and not refunded to me.

In another example, if you have PAID with your withholding $7,000 for the year but only owe them $5,000 in taxes, then you get ZERO BENEFIT from your hybrid tax credit. Your refund will be the $2,000 which you "overpaid" but it will NOT be $2,000 plus your hybrid tax credit amount.

So far I can see nothing anywhere on the web that tells me this is not true. Still looking....

It's confusing to say the least......

 

Then the hybrid credit would be different then every other credit on the books which all apply pre-witholding... and it would encourage people to underwithold....

I just don't believe that.

 

Lets look at a 1040 form on line 46 you determine how much you owe 47-55 are your credits, 56 is the total of your credits.... now look at line 57 which states "Subtract line 56 from line 46. If line 56 is more than line 46, enter -0-"

THIS is the infamous "non-refundable" idea. If your credits are more than your taxes owed your owed taxes will be ZERO but the IRS will never owe you taxes. Now line 61 adds in the earned income credit, etc... these are where the IRS can end up owing you.

FINALLY on line 64 your witholding is figured... AFTER the credits have all been applied on the remaining balance of your taxes (where the balance can never be in your favor except in the two cases you mention).

So the only way you won't get your credit for your hybrid is if your total credits are MORE than line 46 and you have to enter a zero in line 57.

The numbers work out like I said earlier if I'm reading the 1040 form correctly... and I'll trust that over any other source on the internet.

I'm not a tax attourney or advisor, so its possible I'm reading the form wrong, but I don't think so.