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 is Calculated The credit is equal to 15% of an applicable “initial” amount based on your filing status i.e. $5,000 for a single taxpayer, $7,500 for married taxpayers filing a joint return where each spouse is qualified. The initial credit is then decreased 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 also further decreased by one half of the excess of your adjusted gross income over certain predetermined levels, based on your filing status. The levels are for a 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 Benefits and Pensions You should be cautious when listing the nontaxable amounts you receive on your tax return. These amounts are confirmed by the IRS with other information supplied by other government agencies to the IRS. Examples of nontaxable benefits and pensions consist of (a)nontaxable railroad retirement pension payments treated as social security,(b) nontaxable social security payments,(c) Nontaxable pension or annuity payments or disability benefits that are paid under a law administered by the VA. and (d) pension or annuity payments or disability benefits which are excluded from 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.
Credit Limitations In order to determine if you are entitled to the credit, you must consider two income limits. The first income limit is the amount of the taxpayer’s adjusted gross income. The second income limit is the amount of non-taxable Social Security and other non-taxable pensions you received during the year. The amount of credit you can claim is generally limited to the amount of the tax. You may not take this credit if your adjusted gross income(AGI) is equal to and is greater than (a)if single, head of household or qualifying widow(er) with dependent child, the AGI is $17,500, (b)If married filing jointly and one spouse is eligible for the credit the amount the AGI is $20,000. If married filing jointly and both spouses are eligible for the credit the AGI is $25,000. If married filing separately or depending on your filing status the AGI is $12,500, 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.
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