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.

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 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.

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.

What are the Credit Limitations ? In making the determination of the amount of the credit, one is entitled to, you must first consider two income limits. The first income limit is the amount of the your adjusted gross income(AGI). The second income limit to determine is the amount of non-taxable Social Security and other non-taxable pensions you may have received during 2009. The amount of credit you can claim cannot exceed the amount of your tax. Also, you cannot take this credit if your AGI is equal to and is greater than (a)$17,500 if single, or head of household or qualifying widow(er) with a dependent child, (b)$20,000 if you are married and filing jointly and one spouse is eligible for the credit,(c)$25,000 if you are married filing jointly and both spouses are eligible for the credit and (d)$12,500 if married filing separately or depending on your filing status, you are not permitted to use 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.

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