Table R: Tax Credit for Seniors or Persons with Disabilities

Individuals who are 65 years or older or who have retired early due to disability may qualify for a tax credit on federal taxes ranging from $3,750 to $7,500. The senior or disabled tax credit reduces federal taxes for those who meet the qualifying conditions, but there are several eligibility rules.

Who is eligible for Schedule R?

Schedule R (Form 1040) can help you calculate the senior or disabled tax credit. To qualify, you must be a U.S. citizen or resident alien living in the United States and meet the following criteria:

You have reached age 65 by the last day of the tax year, or
You were under age 65 at the end of the tax year and meet all three of the following conditions:
- You retired before the last day of the tax year and were officially recognized as permanently and totally disabled when you retired.
- You received taxable disability income during the year.
- You were younger than the mandatory retirement age defined by your employer, if they have such a requirement.

Note: The Internal Revenue Service (IRS) considers you to be 65 years old on the day before your 65th birthday, so if you were born on January 1, 1958, you are considered to be 65 at the end of 2022.

Disability Requirement

The Internal Revenue Service (IRS) defines total and permanent disability if you meet several requirements:

You are no longer able to engage in any substantial gainful activity. If you are earning less than the minimum wage, it is not considered substantial gainful activity, and if you are engaged in activities that are not considered substantial, it will not be regarded as gainful activity. The activity must be both substantial and gainful together to be excluded from consideration.
A qualified physician must document that you are suffering from the condition or are expected to suffer from it continuously for at least 12 months, or that it is likely to result in your death.

Retirement Due to Disability

You are not necessarily required to retire formally. You can be considered retired due to disability if you stopped working because of your disability.

Disability income must be paid under your employer’s accident and health plan or pension plan and should be included in your income as wages or payments in lieu of wages for the time you miss from work due to a permanent and total disability.

Any payment you receive from a plan that does not provide retirement due to disability is not considered disability income. For example, if you receive a lump-sum payment for accrued annual leave that you receive when you retire due to disability, it is considered a salary payment and not disability income. Disability income does not include amounts you receive after reaching the mandatory retirement age defined by your employer that you would have had to retire even if you had not become disabled.

Note: The Internal Revenue Service (IRS) offers an interactive interview on its website to help you determine if you qualify. You just need to answer a few questions, and it will provide you with the answer. The interview takes about five minutes.

Income Limits

In addition to other qualifying factors, the adjusted gross income (AGI) of the taxpayer must be less than or equal to the following amounts as of the 2021 tax year (the return you will file in 2022):

If your filing status is single, your adjusted gross income must be less than or equal to $17,499.
If you are a head of household, your adjusted gross income must be less than or equal to $17,499.
If you are a qualifying widow/widower with a dependent child, your adjusted gross income must be less than or equal to $17,499.
If
If your filing status is married filing jointly with one eligible spouse, your adjusted gross income must be less than or equal to $19999.
If your filing status is married filing jointly with two eligible spouses, your adjusted gross income must be less than or equal to $24999.
If your filing status is married filing separately and you lived apart from your spouse for the entire year, your adjusted gross income must be less than or equal to $12499.

How to Calculate the Tax Credit

The tax credit is 15% of the base amount, minus the total of non-taxable Social Security and some other non-taxable pensions or disability benefits you received. You should also add half of your adjusted gross income (AGI), minus the maximum threshold of adjusted gross income (AGI). Here are the steps to calculate the tax credit (we will go into more detail for each step below):

Determine your base amount.
Add the total of non-taxable Social Security and other non-taxable pensions.
Calculate the difference between half of your adjusted gross income (AGI) divided by two.
Add step 2 to step 3.
Subtract the sum of steps 2 and 3 from the base amount, then multiply the result by 15%.

This formula gives you a temporary tax credit. Afterward, you must compare the temporary credit to your federal tax liability as calculated using the “Credit Limit Worksheet” found in the instructions for Schedule R. The final tax credit is the smaller amount between the temporary amount and the limited credit threshold.

The Base Amount

The base amount is the lesser of the taxable disability income and the specified amounts below for the tax year 2021:

If your filing status is single, the base amount is the lesser of the taxable disability income and the specified amounts below: $5000.
If you are head of household, the base amount is the lesser of the taxable disability income and the specified amounts below: $7500.
If your filing status is married filing jointly with one eligible spouse, the base amount is the lesser of the taxable disability income and the specified amounts below: $7500.
If your filing status is married filing jointly with two eligible spouses, the base amount is the lesser of the taxable disability income and the specified amounts below: $7500.
If your filing status is married filing separately and you lived apart from your spouse for the entire year, the base amount is the lesser of the taxable disability income and the specified amounts below: $3750.

Tax-Exempt Retirement Benefits

The following sources of income are included when measuring the non-taxable portion of retirement benefits:

Non-taxable Social Security payments before deducting certain medical expenses and workers’ compensation benefits.
Non-taxable railroad retirement benefits that are treated as Social Security.
Non-taxable retirement, disability, or veterans’ benefits from the Department of Veterans Affairs, except for certain cases.
Any pension or benefit that is tax-exempt.

Adjusted Gross Income (AGI) Limits

The following figures are used to calculate the tax credit:

If your filing status is single, head of household, or qualifying widow(er), the adjusted gross income limit is: $7500.
If your filing status is married filing jointly, the adjusted gross income limit is: $10000.
If your filing status is married filing separately, the adjusted gross income limit is: $5000.

How to

Claiming the Tax Credit

To claim the tax credit for the elderly or disabled, you are required to submit two additional forms with your tax return. Schedule R outlines your calculations on how to reach your credit amount. You must then enter the total amount from this form on line 6d of Schedule 3.

Frequently Asked Questions (FAQs)

Who is eligible for the tax credit for the elderly? You may qualify for the tax credit for the elderly (Elderly or Disabled Tax Credit) based on age if you are 65 years old or older by the end of the tax year. If you are under 65, you may qualify if you retired before the last day of the tax year and were officially recognized as permanently and totally disabled at the time you retired, received taxable disability income during the year, and were younger than the mandatory retirement age set by your private employer, if they have this requirement.

What is Schedule R Credit for the elderly or disabled? The Schedule R Credit refers to a worksheet provided by the Internal Revenue Service (IRS) that allows some elderly or disabled individuals to receive a credit ranging from $3,750 to $7,500. The calculation of the credit takes several figures into account, including adjusted gross income and non-taxable Social Security benefits, among others.

Source: https://www.thebalancemoney.com/credit-for-the-elderly-or-disabled-3193013