The rule is very simple, and not ambiguous at all:
The EV tax credit can reduce the TOTAL
amount of income tax you pay for the year, but it cannot make it negative.
There are several ways to pay your income tax:
- You can have money withheld from each paycheck during the year.
- You can have money withheld from retirement checks during the year.
- You can make quarterly estimated payments during the year (and the next January).
- You can pay additional money when you file your return after the end of the year.
- You can get some credits like child tax credit that do count as if you paid the money.
- There are also some other less common forms of payment.
All of these are part of the TOTAL
amount of income tax you pay.
As a simple example, assume that you didn't get your LEAF last year. You go to H&R Block next month, and based on your income and deductions, they calculate that your income tax for the 2010 year is $6,000. You have already paid most of that:
$100 withheld from each weekly paycheck
x 52 weeks
$5,200 withheld during 2010
-$6,000 the TOTAL you have to pay
-$800 This is what you have to pay when you file your tax return this coming April
Now assume your tax calculations and payments work out the same for 2011, but you do get your LEAF. The $7,500 tax credit counts against your TOTAL tax.
$6,000 total tax (ignoring the LEAF)
$0,000 net tax (it can never go negative)
$5,200 withheld during 2011
$5,200 tax refund paid to you in 2012