A Guide to Senior Tax Credit for the Elderly and Disabled

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Once you reach 65, you qualify for Social Security and other retirement benefits. But did you know that you still file tax returns if you earn a gross income of $11,850 or more (outside of Social Security income)?

If you still earn, you still pay. Thankfully, there’s a tax credit for seniors that can help offset the taxes you owe on your retirement income.

One of the biggest is known as the Tax Credit for Elderly or Disabled People. It’s available to those over 65 or people under 65 who are permanently disabled and can’t work.

Do you qualify for the elderly or disabled tax credit? Here’s what everyone who is no longer in full-time work needs to know.

What is the Schedule R Tax Credit for Elderly or Disabled People?

The IRS offers an exclusive credit for older and disabled taxpayers known as the Schedule R Credit for Elderly or Disabled People. It is a way for those on a limited income to minimize their tax bill and avoid owing taxes.

To use the credit, you need to meet specific qualifications provided by the IRS.

Qualifying for the Elderly or Disabled Tax Credit

To qualify, you need to meet either age requirements or three criteria of disability.

If you are 65 years or older by the end of the current tax year, then you qualify.

Are you under 65 and disabled, you must:

  • Be permanently disabled before retirement
  • Receive and declare disability income on your taxes
  • Fall below your employer’s mandatory retirement age before the beginning of the tax year

However, there are some limitations once you meet these basic requirements.

If you earn more than the income limit in any given year, you cannot claim the credit in the year where you exceeded the threshold. You can see the income limits in the next section.

Second, if you are married or in a couple but you file separate tax returns despite living together, then you can’t use the credit.

Income Limits for the Tax Credit for Seniors

Income limits depend on the structure of your household in that tax year.

The limits are as follows:

Are you single or a qualifying widow(er)? If so, you can’t claim the credit once you earn $17,500 that year (as declared on Form 1040 line 7). You also can’t receive the credit if you received $5,000 or more in nontaxable social security, pensions, annuities, or other non-taxable disability income.

Are you married and filing jointly? Is only one spouse eligible for the credit? You can no longer claim the credit once you declare $20,000 or more on Form 1040 line 7. You also can’t claim if you reported $5,000 of nontaxable income like social security payments, pensions, annuities, and disability income.

Are you married, filing jointly, and both eligible for the credit (over 65 or permanently disabled)? Your income threshold is $25,000 and $7,500 or more of the nontaxable income described above.

Those who are married, filing separately, and lived apart from their spouse for the entire tax year have a significantly lower threshold: $12,500 or more and $3,750 of nontaxable payments from social security, pensions, or disability income.

How to Determine Your Credit

If you meet the income, age, or disability qualifications, you’ll need to complete the Schedule R form.

The Schedule R is a type of Form 1040, but it directly relates to the senior tax credit. You will determine the size of your credit by filling out the form.

Part I of the Schedule R Form

Part I determines your filing status and age by the end of the tax year you are filing in.

For 2018, you’ll need to answer questions according to your filing status. If you are single, the head of the household, or a qualifying widow(er), you’ll identify whether you are either 65 or older or, if younger, retired on permanent on total disability.

The same questions apply to those who are married filing jointly and married filing separately, but they also want to know about your spouse’s circumstances.

Once you check the appropriate box, you’ll either move on to Part II or Parts II and III.

You can skip Part II if:

  • You are single/widowed/head of household and 65 or older
  • You are married filing jointly and both over 65
  • You are married filing jointly, and one spouse is 65, but one is not and not retired on permanent and total disability
  • You are married filing separately, 65 or older, and living apart from your spouse for the whole of 2018

If you don’t match any of those descriptions (Boxes 1, 3, 7, or 8 in Part I), then you’ll need to complete Part II.

In most cases, if you are 65 or older, you can skip Part II, but if you are disabled, then you’ll need to complete it.

Part II of Schedule R

Part II of the Schedule R form asks about your disability to determine whether you need a physician’s statement on file.

If you already have your relevant physician’s statement and you certify that you did not find gainful employment during the previous tax year, then you check the box.

If you do not have your physician’s statement, then you need to get one. Ideally, you’ll get it before you file your taxes. However, you don’t need to submit the statement with your taxes. You need it for your records.

What Does a Physician’s Statement Look Like?

A physician’s statement details your permanent and total disability. It will dictate whether the disability can be expected to last for more than a year. It also notes whether your physician expects your condition to improve at any point.

If you file a married filing jointly return and both you and your spouse are disabled, then you both need the statement.

Part III of Schedule R: Determining Your Credit

Now, you can determine whether and how much of the tax credit for seniors you qualify for.

According to the IRS’s instructions for the Schedule R form, you will figure out your credit by using the numbers from line 11 of your Form 1040 and lines 48 and 49 from Schedule 3 (of 1040).

You’ll subtract lines 48 and 49 from line 11.

The number you come up with will be your tax liability limit (line 21 of Schedule R). If you come up with a number that is zero or less, then you can’t take the elderly or disabled credit.

If your number is greater than zero, then you’ll move on to complete the rest of Part III.

Other Credits Available to Seniors

Are you 65 or older, but you earn too much to qualify for the senior tax credit? You’re not out of luck. Here are a few other deductions available for the 65-and-up crowd.

Higher Standard Deductions

The majority of taxpayers enjoy the standard deduction. After the 2017 Tax Cuts and Jobs Act, the standard deduction doubled.

If you are over 65, then you enjoy a higher standard deduction than the under-65 group. If you are married and filing jointly, then both you and your spouse need to be over 65 to qualify for the higher deduction.

Those over 65 can add a further $1,600 to their deduction if they’re single. Those married and filing jointly can add $1,300 to the standard deduction for each spouse over 65 (or $2,600 in total).

Proceeds of Selling Your Home

Do you intend to sell your home when you retire? You don’t need to pay tax on the profits, which allows you to keep the income tax-free.

You can claim up to $250,000 in profit if you are single and $500,000 if you’re married.

Charitable Contributions

Are you using your retirement to give back to your community to the extent that your contributions outweigh the standard deduction? You can deduct those charitable contributions on your taxes. These are one of the few deductions that the tax reform bill never touched.

To use it, you’ll need to itemize your deductions.

You may write off up to 60 percent of your adjusted gross income in charitable contributions. If you donate property rather than cash, you can deduct the property’s fair market value.

Making the most of charitable contribution deductions requires you to bunch them together. If you want to go this route, you might want to focus your giving during one year rather than spreading it out across several years.

Limit the Tax on Your Limited Income

Are you over 65 or disabled and earn enough to file taxes each year? Don’t miss out on the tax credit for seniors and the disabled. Although it has strict income limits, it can reduce your tax burden and protect your limited income as you navigate retirement.

Seniors over 65 who earn below the income threshold automatically qualify and those who have a disability letter from a doctor can also use it. All you need to do is fill out the Section R Form 1040 and worksheet to see how much you can deduct.

Are you retired or disabled and worried about your tax burden? Our team of tax attorneys can iron out your tax issues so you can have more certainty during your retirement. Get in touch today to discuss your tax worries and concerns.

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