IRS Publication 524: Credit for the Elderly or Disabled

IRS Publication 524 provides guidance for a nonrefundable tax credit available to certain taxpayers. This credit is designed to offer financial relief to individuals who are either of a specific age or have retired due to a permanent and total disability. This credit directly reduces the amount of tax owed, but because it is nonrefundable, it cannot result in a refund beyond your tax liability.

Determining Your Eligibility for the Credit

To qualify for the Credit for the Elderly or the Disabled, a taxpayer must satisfy three primary tests concerning their status, income, and residency. The first test is based on age or disability. An individual meets this requirement if they are age 65 or older by the last day of the tax year. Alternatively, a person under age 65 can qualify if they retired on permanent and total disability and received taxable disability income during the year.

The Internal Revenue Service has a specific definition for permanent and total disability. It stipulates that an individual cannot engage in any substantial gainful activity because of a physical or mental condition. This condition must be certified by a physician as having lasted, or being expected to last, continuously for at least 12 months or to result in death.

The final component of eligibility involves strict income limitations. You cannot claim the credit if your Adjusted Gross Income (AGI) or your nontaxable income exceeds certain thresholds. The limits are based on your filing status:

• Single, head of household, or qualifying surviving spouse filers cannot claim the credit if their AGI is $17,500 or more, or if their nontaxable social security and other pension income is $5,000 or more.
• Married couples filing jointly where both spouses are eligible cannot claim the credit if their AGI is $25,000 or more, or if their nontaxable benefits are $7,500 or more.
• Married couples filing jointly where only one spouse is eligible cannot claim the credit if their AGI is $20,000 or more, or if their nontaxable benefits are $5,000 or more.
• A married individual filing separately who lived apart from their spouse for the entire year cannot claim the credit if their AGI is $12,500 or more, or if their nontaxable social security and other pension income is $3,750 or more.

Calculating the Credit Amount

The first step is to establish an initial, or base, amount. This figure is determined by filing status: $5,000 for a single individual or a qualifying surviving spouse, and $5,000 for a married individual filing a joint return when only one spouse qualifies for the credit. The amount increases to $7,500 for married couples filing jointly if both spouses qualify, and $3,750 for a married individual filing a separate return who lived apart from their spouse for the entire year.

Next, this initial amount is reduced by certain nontaxable income and benefits. You must subtract any nontaxable social security benefits you received during the year. The reduction also includes the nontaxable portions of any pensions, annuities, or disability income.

A further reduction is based on your adjusted gross income (AGI). Subtract the AGI threshold from your AGI, divide the result by two, and subtract this amount from your running total. The AGI thresholds are $7,500 for single, head of household, or qualifying surviving spouse filers, and $10,000 for those married filing jointly.

After making all required subtractions from the initial base amount, the remaining figure is multiplied by 15% (0.15). The result is your Credit for the Elderly or the Disabled, which is the amount you will use to reduce your tax liability on your Form 1040.

How to Claim the Credit

To claim the credit, you must complete and attach Schedule R (Form 1040), Credit for the Elderly or the Disabled, to your Form 1040 or Form 1040-SR. This form is available for download from the official IRS website.

In Part I of Schedule R, you will check the box that corresponds to your filing status and age. Part II is for those qualifying due to disability and requires your retirement date and former employer’s name.

For individuals who qualify for the credit based on a disability, you must obtain a statement from a physician that certifies you are permanently and totally disabled. This statement should contain the doctor’s name and address, a description of your condition, and a confirmation that the disability prevents you from engaging in substantial gainful activity and is expected to last for at least 12 months or result in death. While this physician’s statement is not filed with your tax return, you must keep it with your tax records.

Once Schedule R is complete, the final credit amount from line 22 is transferred to the appropriate line on your Form 1040 to directly reduce your total tax.