Elderly or Disabled Tax Credit

A tax credit is available to you if you are either 65 years of age prior to December 31, 2009 or under the age of 65 but retired and were permanently and totally disabled at the time you retired. Unfortunately, this credit is not as sizable as some of the other tax credits that are available, nevertheless, like any tax credit it should be considered, since it could result in some unexpected cash for you.

Amount of Elderly Credit The credit computation begins with an amount equal to 15% of an applicable predefined initial amount based on the taxpayer’s filing status i.e. $5,000 for a single taxpayer, $7,500 for married taxpayers filing a joint return where both spouses are qualified,etc.. The initial amount of the credit is then reduced by certain nontaxable pensions and benefits such as pension, disability benefits or annuities that are excluded from adjusted gross income. The initial credit is then further reduced by one half of the excess of the taxpayer’s adjusted gross income over certain predetermined levels, based on the taxpayer’s filing status. The levels for a single taxpayer is $7,500, married taxpayer 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 Benefits and Pensions You should be cautious when listing the nontaxable amounts received and reflected on your tax return. These amounts are confirmed with information supplied by other government agencies by the Internal Revenue Service. Nontaxable benefits and pensions examples are (a)nontaxable pension or annuity payments or disability benefits that are paid under a law administered by the V.A.,(b) nontaxable railroad retirement pension payments treated as social security,(c)nontaxable social security payments, and (d)annuity or pension payments or disability benefits which not included in income pursuant to any provision of federal law other than the Internal Revenue Code.

Amount of Disability Credit For permanently and totally disabled taxpayers under the age of 65, the applicable initial amount may not exceed the amount of the disability income for the tax year. Special rules apply to determine the initial amounts when one spouse is under 65 and 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.

Tax laws are complex, change constantly and each situation is unique. This article is not intended to provide legal or accounting advice. The reader should perform his or her own due diligence and consult competent professionals in this area. Special rules exist to determine certain exclusions,amount of the credits and the proper filing status. Please refer to the Internal Revenue Service Publication 52 for more detailed information.

Learn 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 reasonably priced paperless and internet based method to tax preparation at affordable prices . Sandor(Sandy) E. Lenner,M.B.A. – C.P.A. has been providing accounting and business services for over 35 years and works part-time at his wife’s CPA firm