While you may hear this credit casually referred to as the Disability Tax Credit, it’s more accurately known as the Tax Credit for the Elderly or Disabled. Helping your clients claim the credit can significantly reduce their tax liability. Here’s what you should know to determine their eligibility, calculate their credit, and claim it on their return.
Who qualifies for the Credit for the Elderly or Disabled?
The Credit for the Elderly or Disabled is a nonrefundable tax credit available to U.S. citizens and resident aliens who are age 65 or older or are retired on permanent and total disability. Eligible individuals must also meet certain income criteria to qualify for the credit.
What are the age requirements and how is disability determined?
For the purposes of the Credit for the Elderly and Disabled, a qualified individual must be a U.S. citizen or resident alien, who is age 65 or older at the end of the tax year OR is under age 65 and is permanently and totally disabled. To be considered disabled they must meet all three of the following criteria:
- They retired on permanent and total disability
- They received taxable disability income during the tax year
- They had not reached the mandatory retirement age at the beginning of the tax year (Mandatory retirement age varies and is set by the taxpayer’s former employer. In other words, if they were required to retire because they reached mandatory retirement age, they do not qualify for this credit.)
In some cases, your disabled clients may need to include a “Statement of Permanent and Total Disability” that has been signed by a physician.
How does filing status impact eligibility?
Generally, if your client is married, they must file a joint return with their spouse to qualify for the credit. Individuals who are filing as Married Filing Separately do not qualify for the credit unless they did not live with their spouse at any time during the year.
What are the income limitations for the Credit for the Elderly and Disabled?
If your client meets the criteria for a qualified individual listed above, you’ll consider their income next. This credit has two separate income thresholds, one for their Adjusted Gross Income (AGI) and another for certain non-taxable benefits and pensions. For tax year 2022, the thresholds were as follows:
Adjusted Gross Income
- Single, head of household, qualified surviving spouse – $17,500
- Married filing jointly and only one spouse qualified for the credit – $20,000
- Married filing jointly and both spouses qualify for the credit – $25,000
- Married filing separately and lived apart from spouse for the entire tax year – $12,500
Certain non-taxable benefits and pensions
- Single, head of household, qualified surviving spouse – $5,000
- Married filing jointly and only one spouse qualified for the credit – $5,000
- Married filing jointly and both spouses qualify for the credit – $7,500
- Married filing separately and lived apart from spouse for the entire tax year – $3,750
Your client must fall under both income thresholds to qualify for the credit.
How do you calculate and claim the Tax Credit for the Elderly and Disabled?
You’ll use Schedule R (Form 1040) to figure and claim the credit. The Tax Credit for the Elderly and Disabled is unique in that it gives you the option to have the IRS calculate and apply the credit for you. To choose this option, simply check the appropriate box on Schedule R. However, your clients will likely prefer that you calculate the credit so that they know their tax liability as soon as possible.
TaxSlayer Pro makes it simple to calculate this credit. From the main menu of the tax return select “Credits,” then “Credits for the Elderly or the Disabled (Sch R).” After selecting the appropriate filing status, enter the following income amounts, if relevant:
- Taxable disability income
- Nontaxable portion of Social Security and Railroad Retirement benefits
- Nontaxable pensions or other pension, annuity, or disability benefits excluded from income
Your TaxSlayer Pro software will take it from there, calculating and applying the credit and attaching Schedule R automatically.
Are there other tax benefits for the disabled?
Disabled persons may be able to benefit from other tax exemptions, credits, and deductions depending on their specific situation. If they’ve made renovations to their home to accommodate their disability, they may be able to deduct the costs as a medical expense.
Married disabled individuals who needed a paid caregiver due to their disability may be able to claim the Child and Dependent Care Tax Credit. Finally, don’t forget to check your state’s laws as some have property tax exemptions and other benefits for the disabled.