Taxes: What Is The Credit For The Elderly And Disabled?

The Credit for the Elderly and Disabled provides tax relief for certain people over 65 or on disability.

The Credit for the Elderly and Disabled was designed by the IRS to provide tax relief to people of a certain age or who are suffering from some sort of disability. In order to qualify for the credit, you must be a U.S. citizen or resident, and fulfill either an age requirement or disability health requirement.

The IRS considers anybody 65 years of age or older to be "elderly;" if you were over this age at the end of the year than you may qualify for the credit. An interesting exception to this rule is that the IRS considers you to be age 65 on the day before your actual birthday. This would allow somebody to be born on January 1st to qualify for the credit, even if he or she doesn't turn 65 until the new year.

If you are under 65, you must fulfill three requirements in order to qualify for the credit. The first is that you have retired on permanent disability. By retiring on permanent disability the government means that you have stopped working because of a mental or physical disability; this disability must be verified by a physician. A tricky part of this criteria is that you cannot have engaged in any substantial gainful activity during the year. This means that any work you do for an employer for profit, whether that be part-time or full-time, may disqualify you from the credit. Any work you do may prove to the IRS that you are able to work, and are not permanently disabled, so be careful about what kinds of activities you participate in during the year. If you aren't sure if the work you are doing is considered substantial and gainful, contact the IRS and ask them.

You also must have received taxable disability income during the tax year, paid out to you by your former employer's health plan or insurance coverage, and by the beginning of the tax year, you must not have yet reached mandatory retirement age. Mandatory retirement age is defined by the IRS as the age at which you would have been forced to retired by your employer had you not been disabled. For example, if you are disabled and are age 55, and your employer's policy is for workers to retire at 59, then you would qualify. If you were 59 or older at the beginning of the tax year, you do not qualify.

If you do qualify for the tax credit, you are still subject to income restrictions. If you are single or head of household, your AGI (adjusted gross income, found on line 37 of Form 1040) cannot be greater than $17,500, and your total nontaxable pension, including social security, cannot exceed $5,000. For those married filing a joint return, if both spouses qualify for the credit the limits are raised to $25,000 and $7,500 (if only one spouse qualifies the limits are $20,000 and $5,000), and if you are married but filing a separate return you do not qualify, unless you did not live with your spouse at any point during the year. In this case the limits are $12,500 and $3,750.

To claim the credit you will need to file either Schedule R, if you are filing Form 1040, or Schedule 3, if you are filing Form 1040A. You can calculate the credit yourself, or have the IRS do it for you. If you wish to have the credit figured for you, you still need to attach the appropriate schedule, but can indicate on your income tax form that you want the IRS to do the actual calculation. If you calculate the credit yourself, you will need to begin with what the IRS calls your "initial amount." This varies between $3,750, $5,000, or $7,500. You will then need to subtract from this amount any non-taxable pensions or social security payments you received, and then further reduce this amount by a percentage of your excess adjusted gross income, determined by another IRS formula. Take the total and then multiply by 15%, and this is your credit. Bear in mind that the credit may be further limited by other credits you have already taken. For more information about figuring the credit, see IRS Publication 524, Schedule R, or Schedule 3.

Don't let the fairly confusing methodology surrounding the Credit for the Elderly and Disabled dissuade you from taking it. Remember, the IRS will do it for you if you feel it is too confusing. If you are over 65 or on disability, you are entitled to money back on your taxes, so take advantage of what is available to you.

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