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US Taxes: Refundable Child Credit with EV Credit

US Taxes: Refundable Child Credit with EV Credit

I have been researching whether or not I could take the refundable portion of the Child Tax Credit ("Additional Child Tax Credit") AFTER applying non-refundable credits like the EV Credit, Foreign Tax, and the non-refundable Child Tax Credit. I did not see that documented here (or anywhere reliable) so wanted to share what I've found for others looking to find that sweet spot of utilizing all non-refundable credits, but not much more. Probably a niche group, but I know several have been asking about how to increase their tax liability to use all the credit, so this applies to any of them that have kids.

tl;dr: Yes, I can. I qualify for the full $2000/child credit, $1400 of which is refundable. The calculation of the Child Tax Credit takes other credits into account before figuring out how much of the $2000 is needed to bring my total tax liability to 0. Anything beyond that amount up to $1400 will be paid to me by the federal government. Everyone's situation is different, this does not constitute tax advice, and the Child Tax Credit has both a minimum earned income (through a job - Dividends, interest, cap gains, and retirement distributions do not count toward this minimum) and a maximum AGI to qualify.

Details:
NB: Refundable tax credits have nothing to do with your tax refund or your withholding. For the purposes of this thread, let's assume you've paid $0 to the federal government in the form of withholding, estimated tax payments, etc. If your total tax liability is 0 after credits, then all that will be refunded to you plus any refundable credits you qualify for.

This year, I bought 2 Teslas. I qualify for $15000 in EV credit to go along with $2000 in Child Tax Credit and a minor Foreign Tax Credit. However, I did not have $17000+ in tax liability and was doing a Roth Conversion to increase my taxable income and utilize the full non-refundable amount. I had to decide how much to convert, but I was unsure what order these would be applied. Without the EV credit and ignoring other credits, if my total tax liability was $600 or less, I would get $1400 back; if it were between $601-2000, I'd get $2000 less that amount; tax liability over $2000 means I'm paying them that amount over. However, with the credit, I wasn't sure if the Child Tax Credit would be fully applied BEFORE any of the other credits were or after. In other words, could I still qualify for the Additional/Refundable Child Tax Credit?

After consulting with my tax attorney, CPA, and looking over the new forms/instructions for 2018, I've concluded I can. Here's the math based on the latest drafts of the 2018 forms. They could change, but I doubt it at this late date.

The key figures are on the 2nd page of the 2018 Child Tax Credit and Credit for Other Dependents Worksheet (page 43 of the 2018 Instruction 1040 at https://www.irs.gov/pub/irs-dft/i1040gi--dft.pdf ). Note on item 10 that it includes the numbers from several other tax credits, including Form 8936 (https://www.irs.gov/pub/irs-dft/f8936--dft.pdf), line 23; which is the final amount of your EV credit. Foreign tax credit is also included in one of the Schedule 3 lines. The total of these other credits is used to determine how much of the Child Tax Credit you need to reduce your tax to 0 and then entered in Form 8812 (https://www.irs.gov/pub/irs-pdf/f1040s8.pdf) Line 1 to determine the refundable portion. In most cases, $2000 - minus that amount, capped at $1400 (per child, up to 3 I believe).

Therefore, in my case, up to $1400 can be returned to me, even after applying the $15000 in EV credits.

sbeggs | 16. Dezember 2018

Very interesting post, thank you.

If I had known children were refundable, I might have had one!

Instant Acceleration | 16. Dezember 2018

@sbeggs - Trust me, you're still coming out WAY ahead on that one.

Brian B | 21. Januar 2019

Thanks @Instant Acceleration. That's exactly was I was looking for on my post awhile back that you commented on.

What did you decide? Get the full $1400 refunded combined with any other taxes that you already paid, or convert to ROTH the full amount to where you just get refunded taxes you already paid?

I wish i had seen your post before the end of the year. It would have reminded me to update everything since close to the end of the year I had a better idea of where everything stood.