Tax Credits for the Elderly or Disabled

A tax credit may be available if you are 65 years of age prior to December 31, 2009 or under 65 but retired and were permanently and totally disabled on the date you retired. Regrettably, this credit is not as significant as some of the other tax credits that are available to qualifying individuals. Notwithstanding the size of the credit, like any tax credit, it should not be overlooked since it could result in some unanticipated cash for you.

How the Elderly Credit Works The credit is equal to 15% of an applicable \”initial\” amount based on an individual\’s filing type i.e. $5,000 for a single individual, $7,500 for married taxpayers filing a joint return where both spouses are qualified. The initial credit is then reduced by certain nontaxable pensions and benefits such as pension ,disability benefits or annuities that are not included in adjusted gross income. The initial credit is then further reduced by one half of the excess of the individual \’s adjusted gross income over certain predetermined levels, based on the individual \’s filing status. The levels are single taxpayer is $7,500, married taxpayers is $10,000 and married taxpayers individually filing separately is $5, 000.The credit is calculated by multiplying the adjusted \”initial\” amount by 15%.

Nontaxable Pensions and Benefits Taxpayers should be careful when listing the nontaxable amounts they receive. These amounts are often verified by the IRS through information supplied by other governmental agencies. Some examples of nontaxable pensions and benefits are (a)nontaxable social security payments,(b)nontaxable railroad retirement pension payments treated as social security, (c) nontaxable pension or annuity payments or disability benefits that are paid under a law administered by the V.A. and (d) pension or annuity payments or disability benefits that are excluded from income under any provision of federal law other than the Internal Revenue Code.

Disability Credit Amount If you are permanently and totally disabled and under the age of 65, the applicable \”initial\” amount may not exceed the amount of the disability income you received during the tax year. Special rules apply to the initial amounts when one spouse is under 65 to determine and support the permanently and totally disability status being claimed.

Limitations to the Credit In order to determine if a taxpayer can claim the credit, the taxpayer must consider two income limits. The first income limit is the amount of your adjusted gross income. The second income limit is the amount of non-taxable Social Security and other non-taxable pensions the taxpayer received. The amount of credit the taxpayer can claim is generally limited to the amount of the tax. A taxpayer may not take this credit if the adjusted gross income is equal to and exceeds the following (a) $17,500 if single, head of household or qualifying widow(er) with dependent child, (b)$20,000 if married filing jointly and one spouse is eligible for the credit, (c) $25,000 if married filing jointly and both spouses are eligible for the credit and (d) $12,500 if married filing separately. Depending on your filing status, you cannot take the credit if you received certain nontaxable benefits ranging from $3,750 to $7,500.

Claiming the Credit The credit is computed on Schedule R form 1040 or form 1040A. This credit is not available for individuals that file form 1040EZ. In the case you file a 1040EZ, just file the allowed forms, Form 1040A or 1040.

There are other variations of the married filing status,special rules exist to determine certain exclusions and the amount of these credits. Please refer to IRS Publication 52 for more information.This article is not intended to be legal or accounting advice. Tax laws are complex, change constantly and each situation is unique. The reader is advised to do his or her own due diligence and consult competent professionals in these areas.

To obtain more about how we can help you determine if you are eligible for the Elderly or Disabled Tax Credit and other available income tax credits and about our competitively priced paperless and internet based method to tax preparation at affordable prices . Sandor(Sandy) E. Lenner,C.P.A.-M.B.A. has provided small business and accounting services for over 35 years and works part-time at his wife\’s CPA firm