Tax Credits for the Elderly or Disabled
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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.
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 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.
How to Determine the Disability Credit For taxpayers who are permanently and totally disabled and under the age of 65 by the end of the year, the applicable “initial” amount may not exceed the amount of the disability income you received during 2009. There are special rules to compute the “initial” amounts when one spouse is under the age of 65 and to determine and support the permanently and totally disability status that is 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 competitively priced paperless and internet based approach to tax preparation at affordable prices . Sandor(Sandy) E. Lenner,CPA-MBA has provided accounting and business services for over 35 years and works part-time at his wife’s CPA firm
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