How to utilize non-refundable tax credits

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bmelikia
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How to utilize non-refundable tax credits

Post by bmelikia »

Hello,

My wife and I usually get a refund at the end of tax season between 2k-10k across state and federal depending on bonuses and wife’s self employment income.

2 nonrefundable tax credits that we would like to take advantage of:
-we recently installed solar on our house for a cost of 22k (would like to utilize the nonrefundable tax credit for purchasing solar)
-Preschool expenses that comply with Child and Dependent Care

Since we don’t owe on our taxes, it’s my understanding that we can’t utilize these nonrefundable tax credits unless we make some adjustments?

Is it as simple as adjusting my w-2 withholding so that I “underwithold” during the course of the year, have my bonus check underwithold as well. . .so that come tax season we will “owe”, and the nonrefundable tax credits above can go towards the amount that’s owed basically?

Any advice would be appreciated
"I would rather die with money, than live without it...." - Bogleheads member Ron | | A time to EVALUATE your jitters https://www.bogleheads.org/forum/viewtopic.php?p=1139732#p1139732
jebmke
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Re: How to utilize non-refundable tax credits

Post by jebmke »

If you have a tax liability (not what you owe when you file) the credit will be applied to that tax liability.

Look at how lines 16-22 operate on form 1040.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
MGBMartin
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Re: How to utilize non-refundable tax credits

Post by MGBMartin »

Years ago my wife and I had a refundable tax credit that was more than our tax liability.
It was from a house purchase we did and the architect/builder told us we could just adjust our W2 by claiming more dependents than we had in order to significantly reduce tax withholding. From what I could tell there was nothing illegal about doing that so I claimed 10 dependents on my W2.
Turned out it was fine and we didn’t even use the entire amount that year and the remainder carried over to the next year.

Only take the above as my experience. You should check your own situation and legality etc.
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jebmke
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Re: How to utilize non-refundable tax credits

Post by jebmke »

I believe Withholding has no impact on how credits are applied.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
tj
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Re: How to utilize non-refundable tax credits

Post by tj »

The only options are increasing income or deducting (deferring) less. You could increase income by converting IRA to Roth.
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bmelikia
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Re: How to utilize non-refundable tax credits

Post by bmelikia »

tj wrote: Sat Aug 13, 2022 5:15 pm The only options are increasing income or deducting (deferring) less. You could increase income by converting IRA to Roth.
Increasing income but underwithold?

What if income just stays the same and I adjust my w2 and bonus withholdings?
"I would rather die with money, than live without it...." - Bogleheads member Ron | | A time to EVALUATE your jitters https://www.bogleheads.org/forum/viewtopic.php?p=1139732#p1139732
MGBMartin
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Re: How to utilize non-refundable tax credits

Post by MGBMartin »

jebmke wrote: Sat Aug 13, 2022 5:09 pm I believe Withholding has no impact on how credits are applied.
When you pay tax on your paycheck your employer has no idea you have a credit to apply at tax filing time so they withhold according to your expected tax liability without the credit.
By adjusting your withholding you are paying less each paycheck because you know your tax liability will be less than your employer thinks.

In other words you know normally your tax liability for the year will be $12000 and in a perfect pay as you go world you have $1000 per month withheld. Now you have a refundable tax credit of $6000 you can continue to have $1000 per month withheld and get $6000 refund next year. Or, you can adjust your withholding to be $500 per month and enjoy the other $500 per month without waiting until next year. The only way I know to do the later is to increase the number of dependents.

As I said I don’t know how legal or correct this is or you mess up and end up not having the credit you thought you had then you will owe the tax and penalties and I’m not sure the IRS would best pleased with you.
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MGBMartin
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Re: How to utilize non-refundable tax credits

Post by MGBMartin »

bmelikia wrote: Sat Aug 13, 2022 5:26 pm
tj wrote: Sat Aug 13, 2022 5:15 pm The only options are increasing income or deducting (deferring) less. You could increase income by converting IRA to Roth.
Increasing income but underwithold?

What if income just stays the same and I adjust my w2 and bonus withholdings?
If it’s a non refundable tax credit you need to have enough income to assure your tax liability will be equal or above the credit amount.
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jebmke
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Re: How to utilize non-refundable tax credits

Post by jebmke »

MGBMartin wrote: Sat Aug 13, 2022 5:30 pm
bmelikia wrote: Sat Aug 13, 2022 5:26 pm
tj wrote: Sat Aug 13, 2022 5:15 pm The only options are increasing income or deducting (deferring) less. You could increase income by converting IRA to Roth.
Increasing income but underwithold?

What if income just stays the same and I adjust my w2 and bonus withholdings?
If it’s a non refundable tax credit you need to have enough income to assure your tax liability will be equal or above the credit amount.
Correct. And withholding has no impact. If you look at the math on 1040, w/h has no impact on credits.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
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Re: How to utilize non-refundable tax credits

Post by jebmke »

bmelikia wrote: Sat Aug 13, 2022 5:26 pm
tj wrote: Sat Aug 13, 2022 5:15 pm The only options are increasing income or deducting (deferring) less. You could increase income by converting IRA to Roth.
Increasing income but underwithold?

What if income just stays the same and I adjust my w2 and bonus withholdings?
Look at the 1040. It is basic arithmetic. W/h has no impact here.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
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bmelikia
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Re: How to utilize non-refundable tax credits

Post by bmelikia »

jebmke wrote: Sat Aug 13, 2022 5:34 pm
bmelikia wrote: Sat Aug 13, 2022 5:26 pm
tj wrote: Sat Aug 13, 2022 5:15 pm The only options are increasing income or deducting (deferring) less. You could increase income by converting IRA to Roth.
Increasing income but underwithold?

What if income just stays the same and I adjust my w2 and bonus withholdings?
Look at the 1040. It is basic arithmetic. W/h has no impact here.
But if I make 30k more this year vs last year and withhold 50% of that additional income - won’t that mean that I won’t “owe” and will be due more of a refund?
"I would rather die with money, than live without it...." - Bogleheads member Ron | | A time to EVALUATE your jitters https://www.bogleheads.org/forum/viewtopic.php?p=1139732#p1139732
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Re: How to utilize non-refundable tax credits

Post by jebmke »

bmelikia wrote: Sat Aug 13, 2022 5:38 pm
jebmke wrote: Sat Aug 13, 2022 5:34 pm
bmelikia wrote: Sat Aug 13, 2022 5:26 pm
tj wrote: Sat Aug 13, 2022 5:15 pm The only options are increasing income or deducting (deferring) less. You could increase income by converting IRA to Roth.
Increasing income but underwithold?

What if income just stays the same and I adjust my w2 and bonus withholdings?
Look at the 1040. It is basic arithmetic. W/h has no impact here.
But if I make 30k more this year vs last year and withhold 50% of that additional income - won’t that mean that I won’t “owe” and will be due more of a refund?
It isn't based on what you owe when you file. Look at the return.
Last edited by jebmke on Sat Aug 13, 2022 5:48 pm, edited 1 time in total.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
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Re: How to utilize non-refundable tax credits

Post by tj »

bmelikia wrote: Sat Aug 13, 2022 5:26 pm
tj wrote: Sat Aug 13, 2022 5:15 pm The only options are increasing income or deducting (deferring) less. You could increase income by converting IRA to Roth.
Increasing income but underwithold?

What if income just stays the same and I adjust my w2 and bonus withholdings?

Since you referenced nonrefundable credits, I was assuming there was concern of not having enough tax liability to use the credits.

If that's not the case, what is the concern?
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Re: How to utilize non-refundable tax credits

Post by samsoes »

bmelikia wrote: Sat Aug 13, 2022 5:38 pm
jebmke wrote: Sat Aug 13, 2022 5:34 pm
bmelikia wrote: Sat Aug 13, 2022 5:26 pm
tj wrote: Sat Aug 13, 2022 5:15 pm The only options are increasing income or deducting (deferring) less. You could increase income by converting IRA to Roth.
Increasing income but underwithold?

What if income just stays the same and I adjust my w2 and bonus withholdings?
Look at the 1040. It is basic arithmetic. W/h has no impact here.
But if I make 30k more this year vs last year and withhold 50% of that additional income - won’t that mean that I won’t “owe” and will be due more of a refund?
Refund amount has nothing to do with a refundable or non-refundable tax credit. It's your tax calculated based on your taxable income that makes the difference. Changing you withholding amounts won't make a difference in the calculated tax at all.

Poor choice of terminology, by the IRS, calling something a refundable tax credit which means something totally different from a tax refund...gotta love the government!
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MGBMartin
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Re: How to utilize non-refundable tax credits

Post by MGBMartin »

jebmke wrote: Sat Aug 13, 2022 5:33 pm
MGBMartin wrote: Sat Aug 13, 2022 5:30 pm
bmelikia wrote: Sat Aug 13, 2022 5:26 pm
tj wrote: Sat Aug 13, 2022 5:15 pm The only options are increasing income or deducting (deferring) less. You could increase income by converting IRA to Roth.
Increasing income but underwithold?

What if income just stays the same and I adjust my w2 and bonus withholdings?
If it’s a non refundable tax credit you need to have enough income to assure your tax liability will be equal or above the credit amount.
Correct. And withholding has no impact. If you look at the math on 1040, w/h has no impact on credits.
I’m not saying it does.
My comments are just examples of when you can realize the lower tax due, now or next year.

I’m not sure if the OP is asking how to take advantage of non refundable tax credit when he will not have a large enough tax liability or how he can take advantage before waiting to file next year or both.
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jebmke
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Re: How to utilize non-refundable tax credits

Post by jebmke »

MGBMartin wrote: Sat Aug 13, 2022 5:56 pm
jebmke wrote: Sat Aug 13, 2022 5:33 pm
MGBMartin wrote: Sat Aug 13, 2022 5:30 pm
bmelikia wrote: Sat Aug 13, 2022 5:26 pm
tj wrote: Sat Aug 13, 2022 5:15 pm The only options are increasing income or deducting (deferring) less. You could increase income by converting IRA to Roth.
Increasing income but underwithold?

What if income just stays the same and I adjust my w2 and bonus withholdings?
If it’s a non refundable tax credit you need to have enough income to assure your tax liability will be equal or above the credit amount.
Correct. And withholding has no impact. If you look at the math on 1040, w/h has no impact on credits.
I’m not saying it does.
My comments are just examples of when you can realize the lower tax due, now or next year.

I’m not sure if the OP is asking how to take advantage of non refundable tax credit when he will not have a large enough tax liability or how he can take advantage before waiting to file next year or both.
2 nonrefundable tax credits that we would like to take advantage of:
-we recently installed solar on our house for a cost of 22k (would like to utilize the nonrefundable tax credit for purchasing solar)
-Preschool expenses that comply with Child and Dependent Care
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
marcopolo
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Re: How to utilize non-refundable tax credits

Post by marcopolo »

bmelikia wrote: Sat Aug 13, 2022 4:41 pm Hello,

My wife and I usually get a refund at the end of tax season between 2k-10k across state and federal depending on bonuses and wife’s self employment income.

2 nonrefundable tax credits that we would like to take advantage of:
-we recently installed solar on our house for a cost of 22k (would like to utilize the nonrefundable tax credit for purchasing solar)
-Preschool expenses that comply with Child and Dependent Care

Since we don’t owe on our taxes, it’s my understanding that we can’t utilize these nonrefundable tax credits unless we make some adjustments?

Is it as simple as adjusting my w-2 withholding so that I “underwithold” during the course of the year, have my bonus check underwithold as well. . .so that come tax season we will “owe”, and the nonrefundable tax credits above can go towards the amount that’s owed basically?

Any advice would be appreciated

You are confusing "what you owe" with "what you owe when you file your taxes".

The non-refundable tax credits require something to be owed for the year. You may have already paid everything you owed via withholding. So, you don't owe anything when you file. But, as long as you owed taxes for the year (paid via withholding), you can still take advantage of non-refundable credits, regardless of whether you owe anything along with your filed taxes or not.
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Re: How to utilize non-refundable tax credits

Post by FiveK »

bmelikia wrote: Sat Aug 13, 2022 5:38 pm But if I make 30k more this year vs last year and withhold 50% of that additional income - won’t that mean that I won’t “owe” and will be due more of a refund?
jebmke wrote: Sat Aug 13, 2022 4:48 pm Look at how lines 16-22 operate on form 1040.
bmelikia, have you tried jebmke's suggestion?
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Re: How to utilize non-refundable tax credits

Post by secondcor521 »

Unused solar energy tax credits can be carried forward to future years. The solar energy tax credit was due to expire in 2023 but is being extended a few more years in the Inflation Reduction Act, which is ... almost ... law.
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Re: How to utilize non-refundable tax credits

Post by BL »

OP, is it clear now that withholding has nothing to do with refundable/non-refundable credits?
I just pulled out my 2021 tax return today and I see:
line 15: taxable income
line 16: Tax
---------
line 19: Nonrefundable child tax credit or ----- (You haven't even gotten to the withholding and tax payments yet.) These are subtracted from your tax until your tax is zero; then they don't give you any more refund. It has nothing to do with how much or when you pay your taxes, only whether the government will get some tax income from you.
----------
line 24: Total Tax
followed by withholding or other tax payments
followed by refundable tax credits. These are credits that you get even if your Total Tax is zero.
These are all added up and if greater than zero, you get it all as a refund.

(If the line numbers don't match your 1040, mine is 1040-SR, just find the words "Tax" instead.)
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Re: How to utilize non-refundable tax credits

Post by clemrick »

bmelikia wrote: Sat Aug 13, 2022 4:41 pm Hello,

My wife and I usually get a refund at the end of tax season between 2k-10k across state and federal depending on bonuses and wife’s self employment income.
Withholding from paychecks and quarterly tax payments for self-employment are just pre-paying the tax you owe with your return. I like to make sure my refund is only a couple hundred dollars or that I owe a couple hundred dollars when I prepare my return. That way, I control my money throughout the year, instead of letting Uncle Sam have it until tax time. You are withholding too much from your paycheck or your wife is paying to much in her quarterly tax payments. If you, like way too many people, see it as enforced "savings" that you can spend in April, then that is up to you.

You REALLY do need to look at your TAX FORMS for the last couple years, since it sounds like your income has fluctuations. Only you can see IF you can even take advantage of the non-refundable credits. The truth is, the solar panel salespeople have no clue what your income is and tell everyone they will get money back, when in reality, non-refundable credits, whether for solar or electric cars, apply only to small proportion of tax payers. You have to have enough taxable income to take advantage of these credits and many, many people don't.
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bmelikia
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Re: How to utilize non-refundable tax credits

Post by bmelikia »

BL wrote: Sun Aug 14, 2022 12:41 am OP, is it clear now that withholding has nothing to do with refundable/non-refundable credits?
I just pulled out my 2021 tax return today and I see:
line 15: taxable income
line 16: Tax
---------
line 19: Nonrefundable child tax credit or ----- (You haven't even gotten to the withholding and tax payments yet.) These are subtracted from your tax until your tax is zero; then they don't give you any more refund. It has nothing to do with how much or when you pay your taxes, only whether the government will get some tax income from you.
----------
line 24: Total Tax
followed by withholding or other tax payments
followed by refundable tax credits. These are credits that you get even if your Total Tax is zero.
These are all added up and if greater than zero, you get it all as a refund.

(If the line numbers don't match your 1040, mine is 1040-SR, just find the words "Tax" instead.)
Here's my info from 2021 tax year

Line 16 16,115
Line 17 BLANK
Line 18 16,115
Line 19 BLANK
Line 20 BLANK
Line 21 BLANK
Line 22 16,115
Line 23 2,425
Line 24 18,540

Can you please help me understand how to decipher from this information if I had similar tax situation for 2022 taxes - if I would be able to take advantage of non-refundable tax credits? And if so, how much?

Sorry - I'm just genuinely struggling with how to figure this out
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secondcor521
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Re: How to utilize non-refundable tax credits

Post by secondcor521 »

bmelikia wrote: Mon Aug 15, 2022 11:08 am
BL wrote: Sun Aug 14, 2022 12:41 am OP, is it clear now that withholding has nothing to do with refundable/non-refundable credits?
I just pulled out my 2021 tax return today and I see:
line 15: taxable income
line 16: Tax
---------
line 19: Nonrefundable child tax credit or ----- (You haven't even gotten to the withholding and tax payments yet.) These are subtracted from your tax until your tax is zero; then they don't give you any more refund. It has nothing to do with how much or when you pay your taxes, only whether the government will get some tax income from you.
----------
line 24: Total Tax
followed by withholding or other tax payments
followed by refundable tax credits. These are credits that you get even if your Total Tax is zero.
These are all added up and if greater than zero, you get it all as a refund.

(If the line numbers don't match your 1040, mine is 1040-SR, just find the words "Tax" instead.)
Here's my info from 2021 tax year

Line 16 16,115
Line 17 BLANK
Line 18 16,115
Line 19 BLANK
Line 20 BLANK
Line 21 BLANK
Line 22 16,115
Line 23 2,425
Line 24 18,540

Can you please help me understand how to decipher from this information if I had similar tax situation for 2022 taxes - if I would be able to take advantage of non-refundable tax credits? And if so, how much?

Sorry - I'm just genuinely struggling with how to figure this out
Both of the credits you talked about in the OP end up on Schedule 3 (line 2 and line 5, respectively), since they're both nonrefundable credits. The total of all your nonrefundable credits ends up on line 20 of your form 1040. This ends up getting subtracted from your amount on line 18, but not less than zero - see the instructions for line 22.

So completely ignoring any withholding, you could have had and used up to $16,115 of nonrefundable credits in 2021. This assumes you otherwise qualified for them, of course.

You had some self employment income, which is why line 23 has an amount on it that represents your self employment taxes. The point here is that you can only use nonrefundable credits against ordinary income taxes; you cannot use them to offset self employment taxes.
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Re: How to utilize non-refundable tax credits

Post by jebmke »

The total tax available to be offset by the non-refundable credits is Line 16
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
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Re: How to utilize non-refundable tax credits

Post by kevin99 »

Hopefully these examples will help:

Let's say your total annual income is $120,000 and just for this example there is a 20% flat income tax. You will owe the IRS $24,000. This $24,000 is your tax liability. Let's say you paid exactly $2000/month in income taxes to the IRS out of your paycheck for a total of $24,000. This means you will not get a "tax refund" at the end of the year since you paid exactly what you owed. However, you are still eligible to receive up to $24000 in non-refundable tax credits.

Now let's say next year you made $50000 per year and the flat income tax rate was 10%. You would have a tax liability of $5000. Let's say you still paid the IRS $2000 per month in income taxes for a total of $24000. You overpaid by $19000 and should get a large tax refund. However, you tax liability is still only $5000 so you can only get up to $5000 of dependent care and solar credits no matter how much you overpay the IRS throughout the year. Again, the only important number here is your tax liability.

So if you have no income that would mean you also have $0 tax liability so you even if you had dependent care and solar expenses you would be eligible for $0 back for those expenses. Your only option is to increase you tax liability by increasing your income by actually earning more money or withdrawing/converting money from a tax deferred account like and IRA/401k and increasing your tax liability.

So at first glance it looks like you are eligible for up to $16,115 of non-refundable credits regardless of whether you overpay or underpay throughout the year.

How much are you expecting in non-refundable credits? Is it more than $16,115?
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Re: How to utilize non-refundable tax credits

Post by bmelikia »

kevin99 wrote: Mon Aug 15, 2022 11:53 am Hopefully these examples will help:

Let's say your total annual income is $120,000 and just for this example there is a 20% flat income tax. You will owe the IRS $24,000. This $24,000 is your tax liability. Let's say you paid exactly $2000/month in income taxes to the IRS out of your paycheck for a total of $24,000. This means you will not get a "tax refund" at the end of the year since you paid exactly what you owed. However, you are still eligible to receive up to $24000 in non-refundable tax credits.
Thank you so much for taking the time to respond and for providing some examples - question:

In the example above, if I'm eligible to receive up to $24,000 in non-refundable tax credits. If I have $4,000.00 in non-refundable tax credits, that reduces the amount of taxable income by $4,000 (ie $800 per the 20% in the example above)? Or would it reduce the amount I owe in taxes by $4,000. . .and if I paid in $24,000 over the course of the year I would get $4,000 back at the end of the tax year?
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Re: How to utilize non-refundable tax credits

Post by tj »

bmelikia wrote: Mon Aug 15, 2022 2:27 pm
kevin99 wrote: Mon Aug 15, 2022 11:53 am Hopefully these examples will help:

Let's say your total annual income is $120,000 and just for this example there is a 20% flat income tax. You will owe the IRS $24,000. This $24,000 is your tax liability. Let's say you paid exactly $2000/month in income taxes to the IRS out of your paycheck for a total of $24,000. This means you will not get a "tax refund" at the end of the year since you paid exactly what you owed. However, you are still eligible to receive up to $24000 in non-refundable tax credits.
Thank you so much for taking the time to respond and for providing some examples - question:

In the example above, if I'm eligible to receive up to $24,000 in non-refundable tax credits. If I have $4,000.00 in non-refundable tax credits, that reduces the amount of taxable income by $4,000 (ie $800 per the 20% in the example above)? Or would it reduce the amount I owe in taxes by $4,000. . .and if I paid in $24,000 over the course of the year I would get $4,000 back at the end of the tax year?

Its a tax credit, not a deduction. It reduces your tax by the $4k, not the taxable income.
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Re: How to utilize non-refundable tax credits

Post by jebmke »

bmelikia wrote: Mon Aug 15, 2022 2:27 pm
kevin99 wrote: Mon Aug 15, 2022 11:53 am Hopefully these examples will help:

Let's say your total annual income is $120,000 and just for this example there is a 20% flat income tax. You will owe the IRS $24,000. This $24,000 is your tax liability. Let's say you paid exactly $2000/month in income taxes to the IRS out of your paycheck for a total of $24,000. This means you will not get a "tax refund" at the end of the year since you paid exactly what you owed. However, you are still eligible to receive up to $24000 in non-refundable tax credits.
Thank you so much for taking the time to respond and for providing some examples - question:

In the example above, if I'm eligible to receive up to $24,000 in non-refundable tax credits. If I have $4,000.00 in non-refundable tax credits, that reduces the amount of taxable income by $4,000 (ie $800 per the 20% in the example above)? Or would it reduce the amount I owe in taxes by $4,000. . .and if I paid in $24,000 over the course of the year I would get $4,000 back at the end of the tax year?
The credit is applied to the tax, not the income. That is, the credit reduces the tax owed. The credit will appear on line 21 (Line 19+Line 20). Line 20 of the 1040 says "subtract Line 21 from Line 18; Line 18 is the amount you owe before applying the credit.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
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Re: How to utilize non-refundable tax credits

Post by kevin99 »

bmelikia wrote: Mon Aug 15, 2022 2:27 pm
kevin99 wrote: Mon Aug 15, 2022 11:53 am Hopefully these examples will help:

Let's say your total annual income is $120,000 and just for this example there is a 20% flat income tax. You will owe the IRS $24,000. This $24,000 is your tax liability. Let's say you paid exactly $2000/month in income taxes to the IRS out of your paycheck for a total of $24,000. This means you will not get a "tax refund" at the end of the year since you paid exactly what you owed. However, you are still eligible to receive up to $24000 in non-refundable tax credits.
Thank you so much for taking the time to respond and for providing some examples - question:

In the example above, if I'm eligible to receive up to $24,000 in non-refundable tax credits. If I have $4,000.00 in non-refundable tax credits, that reduces the amount of taxable income by $4,000 (ie $800 per the 20% in the example above)? Or would it reduce the amount I owe in taxes by $4,000. . .and if I paid in $24,000 over the course of the year I would get $4,000 back at the end of the tax year?
It would be the latter. A tax credit reduces your tax liability. So, the following is correct, "it reduce the amount I owe in taxes by $4,000. . .and if I paid in $24,000 over the course of the year I would get $4,000 back at the end of the tax year".
Topic Author
bmelikia
Posts: 842
Joined: Mon Jun 15, 2009 9:23 pm

Re: How to utilize non-refundable tax credits

Post by bmelikia »

kevin99 wrote: Mon Aug 15, 2022 3:02 pm
bmelikia wrote: Mon Aug 15, 2022 2:27 pm
kevin99 wrote: Mon Aug 15, 2022 11:53 am Hopefully these examples will help:

Let's say your total annual income is $120,000 and just for this example there is a 20% flat income tax. You will owe the IRS $24,000. This $24,000 is your tax liability. Let's say you paid exactly $2000/month in income taxes to the IRS out of your paycheck for a total of $24,000. This means you will not get a "tax refund" at the end of the year since you paid exactly what you owed. However, you are still eligible to receive up to $24000 in non-refundable tax credits.
Thank you so much for taking the time to respond and for providing some examples - question:

In the example above, if I'm eligible to receive up to $24,000 in non-refundable tax credits. If I have $4,000.00 in non-refundable tax credits, that reduces the amount of taxable income by $4,000 (ie $800 per the 20% in the example above)? Or would it reduce the amount I owe in taxes by $4,000. . .and if I paid in $24,000 over the course of the year I would get $4,000 back at the end of the tax year?
It would be the latter. A tax credit reduces your tax liability. So, the following is correct, "it reduce the amount I owe in taxes by $4,000. . .and if I paid in $24,000 over the course of the year I would get $4,000 back at the end of the tax year".
Thank you Kevin (and others) for your contributions and for helping me better understand!
"I would rather die with money, than live without it...." - Bogleheads member Ron | | A time to EVALUATE your jitters https://www.bogleheads.org/forum/viewtopic.php?p=1139732#p1139732
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