Credit for The Elderly and Disabled
The credit for the elderly and disabled allows people who were 65 before the end of the tax year or who were permanently and totally disabled and received taxable disability income from a former employer's disability plan to claim a small credit to offset their ordinary income tax liability. Because there has been no inflation adjustment since 1983 and tax liability has been greatly reduced since then because of inflation adjustments for income taxes, the nonrefundable credit for the elderly and disabled is severely limited by ordinary income tax liability.
The tax law defines disabled as being unable to engage in substantial gainful activity because of medically verifiable physical or mental impairments for a continuous period of at least 12 months or that is reasonably expected to result in death. A physician certification of the disability is required when the credit is first applied for, but not subsequent years.
Taxpayers who were nonresident aliens at any time during the tax year can only claim the credit if they are married to a citizen or resident and have elected to be treated as a resident.
The credit must be claimed on Schedule R for Form 1040 or Form 1040A – but not Form 1040EZ. Married couples must file a joint return unless the spouses lived apart at all times during the tax year and file separately.
The amount of the credit is 15% times the applicable credit base amount, reduced by nontaxable social security or other tax-free pensions, and by adjusted gross income (AGI) exceeding a threshold amount.
Credit Base Amounts:
- $5,000 for single, head of household, qualifying widow(er), and on a joint return where only 1 spouse is eligible;
- $7,500 on a joint return when both spouses are eligible;
- $3,750 for a spouse, who has lived apart from the other spouse at all times during the tax year, and who files a separate return.
For the permanently and totally disabled who are younger than 65, the base amount is the lower of their total tax taxable disability income or the base amount based on filing status.
On a joint return, where both spouses qualify for the credit and 1 spouse is 65 or over and the other spouse is younger than 65 but receives disability income, then the credit base amount is the lesser of $7,500 or $5,000 + the disability income. If both spouses are disabled and under age 65, then the credit is limited either to the lower of their taxable disability income or their base amount.
The credit is reduced by income from pensions, annuities, or disability benefits that are excludable from gross income. Tax-free pension, annuity, or disability income paid by the Veterans Administration also reduces the credit, but does not include military disability pensions. There is also an AGI limit: ½ of the income above the AGI limit reduces the credit base.
- $7,500 for a single, head of household, or qualified widow(er);
- $10,000 for married filing jointly;
- $5,000 for married spouses who lived apart during the entire tax year and file a separate return.
Excess AGI = .5 × (AGI – AGI Limit)
Example: a single taxpayer has an AGI of $10,500 for the tax year. Therefore, his excess AGI is equal to:
Excess AGI = .5 × ($10,500 – $7,500) = .5 × $3,000 = $1,500
Therefore, the credit is not available when AGI equals $17,500 for single, $20,000 for joint return where 1 spouse is eligible for the credit, $25,000 on the joint return when both spouses are eligible, and $12,500 for married persons filing separately. The credit base that remains after subtracting nontaxable social security and pension payments and excess AGI from the base amount is multiplied by 15%. However, the full amount of the credit may not be available, since it is limited by the taxpayer's ordinary income tax liability.
Credit = (Base Amount – Nontaxable Social Security Payments – Nontaxable Pension Payments – Excess AGI) × .15.
Example: a married couple who file a joint return are both eligible for the credit. They have a combined AGI of $15,000 plus they receive $3,000 in nontaxable Social Security income. Therefore:
|Initial Credit Base Amount|
for a married couple filing jointly
where both are eligible for the credit:
|Subtract nontaxable social security benefits||-$3,000|
|Subtract excess AGI:|
.5 × ($15,000 – $10,000) =
|Eligible Credit Base Amount =||$2,000|
|Credit = Eligible Credit Base Amount × .15||$300|