Do I Need To Adjust My Tax Withholdings at Work To Account for a Tax Credit?

To get a tax credit, you need to owe the IRS at least the full amount that the credit is worth.

To put it another way, if you get a tax credit of $5,000, but you owe less than $5,000 in taxes, you won’t get the full credit. Tax credits for things like solar panels only apply to offset your tax bill.

If your employer is withholding taxes on your paychecks, you may not owe any money come tax day. Will that also prevent you from receiving the tax credit?

That’s what a listener of the Clark Howard Podcast recently asked.

Should I Adjust My Tax Withholdings in Order To Receive a Tax Credit?

If you’ve earned a tax credit, you probably want to make sure you get credit for every possible dollar.

Your tax bill needs to be at least as large as your tax credit. But what if your tax withholdings at work ensure that you don’t owe anything on your tax return?

That’s what a listener wanted to know on the April 3 podcast episode.

Asked Manoj in Illinois: “I am anticipating a $7,500 electric vehicle tax credit. As it is a credit should I set my W-4 with my employer to ensure I have at least this amount due?”

Fortunately, you don’t need to change your tax withholdings at work to get a tax credit. You need tax liability for the tax credit to offset. But you don’t need to owe money on your return.

“It’s really an issue of your tax liability. When a credit like that does not flow to the taxpayer is if you didn’t owe any income tax in the year that you’re seeking a tax credit for,” Clark says.

“I know of no reason why you would have to manipulate withholdings in a year that you’re receiving an electric vehicle credit because it’s based on you having tax liability, not how much or how little you had withheld over the course of the year.”

If you have any big tax questions, you can always contact a CPA who prepares tax returns. The deadline to file your 2023 tax return or file for an extension is April 18.

Final Thoughts

Are you in line to receive a tax credit on your 2023 tax return? As long as your tax liability is equal to or greater than the tax credit, you should be able to apply the full amount.

Even if you’re withholding taxes through your paycheck and do not owe any money to the IRS when you file your tax return, you can still utilize your tax credit.