I searched and couldn't find anything relating to this...

I looked at my tax return last year and say for instance my total tax due is $1600 and I have a hybrid tax credit of $2100. Do I get a refund of $500 or do I just not pay taxes for that year? From the looks of it I would just get $1600 for the hybrid tax credit and not get any refund for the other $500. Is that correct?

Correct. It is non-refundable.

For most people, they pay way more than $1600 in federal taxes. The $1600 in your example is just the difference in what you really owed and what you paid. It's an adjustment. The credit will change what you really owe, so you owing the IRS $1600 will turn into the IRS owing you $500.

Assuming you used Form 1040 for your taxes, look and see what is your total tax (Line 63). This is the number that will be reduced by the credit. Is is a lot more than $2,100?

Mr. Kite's point is that you have to be careful which "total tax due" number you're looking at. If you assume that your federal tax situation, the tax rates, and the tax forms will all be the same in 2006 as they were in 2005, the key numbers for you to look at are on your 2005 Form 1040 lines 46 and 56. Take line 56 and add your hybrid credit to it (because you'll be listing the credit on line 55). If your new line 56 amount (with your hybrid credit included) is more than your line 46, you will not get the full benefit of the credit. (As line 57 says, "If line 56 is more than line 46, enter 0.") Note, though, that if the Alternative Minimum Tax applies to you, disregard all of this; you probably won't benefit from the credit anyway.

(Note: It is the amount on line 46 that will be reduced by the credit, not the amount on line 63 as stated by Mr. Kite. Assuming that the line numbers do not change.)

highroute -
2006 Barcelona Red Metallic

You have made me pull out my taxes again. I see what you are saying. Essentially, the credit cannot be applied to the various taxes that are represented in Lines 58 to 62. I should have said to look at line 57 instead of 63. Line 57 represents the taxes (that may have already been reduced by some credits) that could be further reduced by an additional hybrid tax credit. For some, but not all, people, Line 57 and Line 63 are the same. Does this seem right?

Thanks.

Yes, I think so. I'm not a tax expert, but that seems to me to be the way the numbers work out.

highroute -
2006 Barcelona Red Metallic

Thanks for pointing this out. I just had my wife change our filing status to make sure we OWE. Last year we got back $300. Don't want that to happen again!

-Tim

2006 Mercury Mariner Hybrid AWD
Black with Pebble interior
Premium Package with Nav & Moonroof



Current ODO: 22,909
Typical Drive: 20 min crosstown in heavy traffic (3.5mi there and back twice a day)


457 Gallons of gas saved
That's 9,150 lbs less CO2

Don't confuse your tax owed with you tax liability. Changing your withholding amounts will not increase your income.
As mentioned before, look at your line 57 amount.
My advice is to see your accountant. Depending on your situation, there are ways to increase your tax liabilty if need be.

Line 57 was thousands of dollars last year. I guess the confusion is taxes OWED vs taxes DUE. In other words, we have had enough money withheld during the year to cover our taxes owed. And, as long as the $1950 credit is less than the "total tax", we can take the credit and get it refunded? I'll double check with my accountant too...

-Tim

2006 Mercury Mariner Hybrid AWD
Black with Pebble interior
Premium Package with Nav & Moonroof



Current ODO: 22,909
Typical Drive: 20 min crosstown in heavy traffic (3.5mi there and back twice a day)


457 Gallons of gas saved
That's 9,150 lbs less CO2

As nomorebenz wrote, changing your tax withholding on a W-4 form with your employer will not affect your ability to use the hybrid credit. The key is comparing Form 1040 line 46 with line 56, after adding your hybrid credit to line 56. Line 46 needs to be bigger than line 56 in order for you to take full advantage of the hybrid credit and your other credits if any. If you merely change your withholding, that change shows up way down on line 64, too low to affect your usage of the credit.

If you decide you want to increase line 46 because it will be smaller than line 56, consider these ideas: Talk to your tax adviser. Work some overtime. Postpone your contributions to charity until January. Sell some stocks on which you have a long-term capital gain. Convert part of your conventional IRA to a Roth IRA. But before you do any of that, talk to your tax adviser!

highroute -
2006 Barcelona Red Metallic