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Publication 17 2008 Tax Year

33.   Credit for the Elderly or the Disabled

Table of Contents

Introduction

If you qualify, you may be able to reduce the tax you owe by taking the credit for the elderly or the disabled.

This chapter explains the following.

  • Who qualifies for the credit for the elderly or the disabled.

  • How to figure the credit.

You may be able to take the credit for the elderly or the disabled if:

  • You are age 65 or older, or

  • You retired on permanent and total disability and have taxable disability income.

Useful Items - You may want to see:

Publication

  • 524 Credit for the Elderly or the Disabled

  • 554 Tax Guide for Seniors

  • 967 The IRS Will Figure Your Tax

Forms (and Instructions)

  • Schedule 3 (Form 1040A) Credit for the Elderly or the Disabled for Form 1040A Filers

  • Schedule R (Form 1040) Credit for the Elderly or the Disabled

Are You Eligible for the Credit?

You can take the credit for the elderly or the disabled if you meet both of the following requirements.

  • You are a qualified individual.

  • Your income is not more than certain limits.

You can use Figure 33-A and Figure 33-B as guides to see if you are eligible for the credit.

Use Figure 33-A first to see if you are an eligible individual. If you are, go to Figure 33-B to make sure your income is not too high to take the credit.

You can take the credit only if you file Form 1040 or Form 1040A. You cannot take the credit if you file Form 1040EZ.

Qualified Individual

You are a qualified individual for this credit if you are a U.S. citizen or resident alien and either of the following applies.

  1. You were age 65 or older at the end of 2008.

  2. You were under age 65 at the end of 2008 and all three of the following statements are true.

    1. You retired on permanent and total disability (explained later).

    2. You received taxable disability income for 2008.

    3. On January 1, 2008, you had not reached mandatory retirement age (defined later under Disability income ).

Age 65.   You are considered to be age 65 on the day before your 65th birthday. Therefore, if you were born on January 1, 1944, you are considered to be age 65 at the end of 2008.

U.S. Citizen or Resident Alien

You must be a U.S. citizen or resident alien (or be treated as a resident alien) to take the credit. Generally, you cannot take the credit if you were a nonresident alien at any time during the tax year.

Exceptions.   You may be able to take the credit if you are a nonresident alien who is married to a U.S. citizen or resident alien at the end of the tax year and you and your spouse choose to treat you as a U.S. resident alien. If you make that choice, both you and your spouse are taxed on your worldwide incomes.

If you were a nonresident alien at the beginning of the year and a resident alien at the end of the year, and you were married to a U.S. citizen or resident alien at the end of the year, you may be able to choose to be treated as a U.S. resident alien for the entire year. In that case, you may be allowed to take the credit.

For information on these choices, see chapter 1 of Publication 519, U.S. Tax Guide for Aliens.

Married Persons

Generally, if you are married at the end of the tax year, you and your spouse must file a joint return to take the credit. However, if you and your spouse did not live in the same household at any time during the tax year, you can file either joint or separate returns and still take the credit.

Head of household.   You can file as head of household and qualify to take the credit, even if your spouse lived with you during the first 6 months of the year, if you meet all the tests. See Head of Household in chapter 2 for the tests you must meet.

Under Age 65

If you are under age 65 at the end of 2008, you can qualify for the credit only if you are retired on permanent and total disability (discussed next) and have taxable disability income (discussed later under Disability income ). You are retired on permanent and total disability if:

  • You were permanently and totally disabled when you retired, and

  • You retired on disability before the close of the tax year.

Even if you do not retire formally, you may be considered retired on disability when you have stopped working because of your disability.

If you retired on disability before 1977, and were not permanently and totally disabled at the time, you can qualify for the credit if you were permanently and totally disabled on January 1, 1976, or January 1, 1977.

You are considered to be under age 65 at the end of 2008 if you were born after January 1, 1944.
Permanent and total disability.    You are permanently and totally disabled if you cannot engage in any substantial gainful activity because of your physical or mental condition. A physician must certify that the condition has lasted or can be expected to last continuously for 12 months or more, or that the condition can be expected to result in death. See Physician's statement, later.

Substantial gainful activity.   Substantial gainful activity is the performance of significant duties over a reasonable period of time while working for pay or profit, or in work generally done for pay or profit. Full-time work (or part-time work done at your employer's convenience) in a competitive work situation for at least the minimum wage conclusively shows that you are able to engage in substantial gainful activity.

  Substantial gainful activity is not work you do to take care of yourself or your home. It is not unpaid work on hobbies, institutional therapy or training, school attendance, clubs, social programs, and similar activities. However, doing this kind of work may show that you are able to engage in substantial gainful activity.

   The fact that you have not worked for some time is not, of itself, conclusive evidence that you cannot engage in substantial gainful activity.

Sheltered employment.   Certain work offered at qualified locations to physically or mentally impaired persons is considered sheltered employment. These qualified locations are in sheltered workshops, hospitals, and similar institutions, homebound programs, and Department of Veterans Affairs (VA) sponsored homes.

  Compared to commercial employment, pay is lower for sheltered employment. Therefore, one usually does not look for sheltered employment if he or she can get other employment. The fact that one has accepted sheltered employment is not proof of that person's ability to engage in substantial gainful activity.

Physician's statement.   If you are under age 65, you must have your physician complete a statement certifying that you were permanently and totally disabled on the date you retired. You can use the statement in the instructions for Schedule R (Form 1040) or Schedule 3 (Form 1040A).

  

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Figure 33-A Are You a Qualified Individual? Figure 33-B Income Limits

  You do not have to file this statement with your Form 1040 or Form 1040A, but you must keep it for your records.

Veterans.   If the Department of Veterans Affairs (VA) certifies that you are permanently and totally disabled, you can substitute VA Form 21-0172, Certification of Permanent and Total Disability, for the physician's statement you are required to keep. VA Form 21-0172 must be signed by a person authorized by the VA to do so. You can get this form from your local VA regional office.

Physician's statement obtained in earlier year.   If you got a physician's statement in an earlier year and, due to your continued disabled condition, you were unable to engage in any substantial gainful activity during 2008, you may not need to get another physician's statement for 2008. For a detailed explanation of the conditions you must meet, see the instructions for Part II of Schedule R (Form 1040) or Schedule 3 (Form 1040A). If you meet the required conditions, check the box on line 2 of Part II of Schedule R (Form 1040) or Schedule 3 (Form 1040A).

  If you checked box 4, 5, or 6 in Part I of either Schedule R or Schedule 3, enter in the space above the box on line 2 in Part II the first name(s) of the spouse(s) for whom the box is checked.

Disability income.   If you are under age 65, you must also have taxable disability income to qualify for the credit. Disability income must meet both of the following requirements.

  • It must be paid under your employer's accident or health plan or pension plan.

  • It must be included in your income as wages (or payments instead of wages) for the time you are absent from work because of permanent and total disability.

Payments that are not disability income.   Any payment you receive from a plan that does not provide for disability retirement is not disability income. Any lump-sum payment for accrued annual leave that you receive when you retire on disability is a salary payment and is not disability income.

  For purposes of the credit for the elderly or the disabled, disability income does not include amounts you receive after you reach mandatory retirement age. Mandatory retirement age is the age set by your employer at which you would have had to retire, had you not become disabled.

Income Limits

To determine if you can claim the credit, you must consider two income limits. The first limit is the amount of your adjusted gross income (AGI). The second limit is the amount of nontaxable social security and other nontaxable pensions you received. The limits are shown in Figure 33-B, earlier.

If both your AGI and nontaxable pensions are less than the income limits, you may be able to claim the credit. See Figuring the Credit Yourself, later.

If either your AGI or your nontaxable pensions are equal to or more than the income limits, you cannot take the credit.

Credit Figured for You

You can figure the credit yourself, or the Internal Revenue Service (IRS) will figure it for you. See Figuring the Credit Yourself , next.

If you choose to have the IRS figure the credit for you, read the following discussion for the form you will file (Form 1040 or 1040A).

If you want the IRS to figure your tax, see chapter 30.

Form 1040.   If you want the IRS to figure your credit, see Form 1040 Line Entries under Tax Figured by IRS in chapter 30.

Form 1040A.   If you want the IRS to figure your credit, see Form 1040A Line Entries under Tax Figured by IRS in chapter 30.

Figuring the Credit Yourself

If you figure the credit yourself, fill out the front of either Schedule R (if you are filing Form 1040) or Schedule 3 (if you are filing Form 1040A). Next, fill out Part III of either Schedule R or Schedule 3.

Table 33-1. Initial Amounts

  IF your filing status is ...   THEN enter on line 10 of Schedule R (Form 1040) or Schedule 3 (Form 1040A)...
  single, head of household, or qualifying widow(er) with dependent child and, by the end of 2008, you were    
    • 65 or older $5,000
    • under 65 and retired on permanent and total disability1 $5,000
  married filing a joint return and by the end of 2008    
    • both of you were 65 or older $7,500
    • both of you were under 65 and one of you retired on permanent and total disability1 $5,000
    • both of you were under 65 and both of you retired on permanent and total disability2 $7,500
    • one of you was 65 or older, and the other was under 65 and retired on permanent and total disability3 $7,500
    • one of you was 65 or older, and the other was under 65 and not retired on permanent and total disability $5,000
  married filing a separate return and you did not live with your spouse at any time during the year and, by the end of 2008, you were    
    • 65 or older $3,750
    • under 65 and retired on permanent and total disability1 $3,750
1Amount cannot be more than the taxable disability income.  
2Amount cannot be more than your combined taxable disability income.  
3Amount is $5,000 plus the taxable disability income of the spouse under age 65, but not more than $7,500.  

There are five steps in Part III to determine the amount of your credit:

  1. Determine your initial amount (lines 10–12).

  2. Determine the total of any nontaxable social security and certain other nontaxable pensions and disability benefits you received (lines 13a, 13b, and 13c).

  3. Determine your excess adjusted gross income (lines 14–17).

  4. Determine the total of Steps 2 and 3 (line 18).

  5. Determine your credit (lines 19–24 of Schedule R or lines 19–22 of Schedule 3).

These steps are discussed in more detail next.

Step 1. Determine Initial Amount

To figure the credit, you must first determine your initial amount using lines 10 through 12. See Table 33-1. Your initial amount is on line 12.

Initial amounts for persons under age 65.   If you are a qualified individual under age 65, your initial amount cannot be more than your taxable disability income.

Step 2. Total Certain Nontaxable Pensions and Benefits

Step 2 is to figure the total amount of nontaxable social security and certain other nontaxable payments you received during the year. You must reduce your initial amount by these payments.

Enter these nontaxable payments on lines 13a or 13b, and total them on line 13c. If you are married filing a joint return, you must enter the combined amount of nontaxable payments both you and your spouse receive.

Worksheets are provided in the instructions for Forms 1040 and 1040A to help you determine if any of your social security benefits (or equivalent railroad retirement benefits) are taxable.
Nontaxable payments.   Include the following nontaxable payments in the amounts you enter on lines 13a and 13b.

  • Nontaxable social security payments. This is the nontaxable part of the benefits shown in box 5 of Form SSA-1099, Social Security Benefit Statement, which includes disability benefits, before deducting any amounts withheld to pay premiums on supplementary Medicare insurance, and before any reduction because of benefits received under workers' compensation. (Do not include a lump-sum death benefit payment you may receive as a surviving spouse, or a surviving child's insurance benefit payments you may receive as a guardian.)

  • Nontaxable railroad retirement pension payments treated as social security. This is the nontaxable part of the benefits shown in box 5 of Form RRB-1099, Payments by the Railroad Retirement Board.

  • Nontaxable pension or annuity payments or disability benefits that are paid under a law administered by the Department of Veterans Affairs (VA). (Do not include amounts received as a pension, annuity, or similar allowance for personal injuries or sickness resulting from active service in the armed forces of any country or in the National Oceanic and Atmospheric Administration, or the Public Health Service, or as a disability annuity under section 808 of the Foreign Service Act of 1980.)

  • Pension or annuity payments or disability benefits that are excluded from income under any provision of federal law other than the Internal Revenue Code. (Do not include amounts that are a return of your cost of a pension or annuity. These amounts do not reduce your initial amount.)

You should be sure to take into account all of the nontaxable amounts you receive. These amounts are verified by the IRS through information supplied by other government agencies.

Step 3. Determine Excess Adjusted Gross Income

You also must reduce your initial amount by your excess adjusted gross income. Figure your excess adjusted gross income on lines 14–17.

You figure your excess adjusted gross income as follows:

  1. Subtract from your adjusted gross income (Form 1040, line 38 or Form 1040A, line 22) the amount shown for your filing status in the following list.

    1. $7,500 if you are single, a head of household, or a qualifying widow(er) with a dependent child,

    2. $10,000 if you are married filing a joint return, or

    3. $5,000 if you are married filing a separate return and you and your spouse did not live in the same household at any time during the tax year.

  2. Divide the result of (1) by 2.

Step 4. Determine the Total of Steps 2 and 3

To determine if you can take the credit, you must add (on line 18) the amounts you figured in Step 2 and Step 3.

IF the total of Steps 2 and 3 is ...  
THEN ...
equal to or more than the amount in Step 1   you cannot take the credit.
less than the amount in Step 1   you can take the credit.

Step 5. Determine Your Credit

If you can take the credit, subtract the amount determined in Step 4 (line 18) from the amount determined in Step 1(line 12) and multiply the result by 15%.

In certain cases, the amount of your credit may be limited. See Limit on credit , later.

Example.

You are 66 years old and your spouse is 64. Your spouse is not disabled. You file a joint return on Form 1040. Your adjusted gross income is $14,630. Together you received $3,200 from social security, which was nontaxable. You figure the credit as follows:

Applying the 5 Step Process   Amount
1) Initial amount   $5,000
2) Total of social security and
other nontaxable pensions 		  $3,200    
3) Excess adjusted gross income
($14,630 − $10,000) ÷ 2 		  2,315    
4) Add line 2 and line 3       5,515
5) Subtract line 4 from line 1
(Do not enter less than -0-) 		  -0-

You cannot take the credit because your nontaxable social security (line 2a) plus your excess adjusted gross income (line 2b) is more than your initial amount (line 1).

Limit on credit.   The amount of credit you can claim is generally limited to the amount of your tax. For more information, see the instructions for Part III, Schedule R (Form 1040) or Schedule 3 (Form 1040A).

Example

The following example illustrates the credit for the elderly or the disabled. The initial amount is taken from Table 33-1, shown earlier.

James Davis is 58 years old, single, and files Form 1040A. In 1998 he retired on permanent and total disability, and he is still permanently and totally disabled. He got the required physician's statement in 1998, and kept it with his records. His physician signed on line B of the statement. This year James checks the box in Part II of Schedule 3. He does not need to get another statement for 2008.

He received the following income for the year:

Nontaxable social security $1,500
Interest (taxable) 100
Taxable disability pension 11,400
   

James' adjusted gross income is $11,500 ($11,400 + $100). He figures the credit on Schedule 3 as follows:

1)   Initial amount   $5,000
2)   Taxable disability pension   11,400
3)   Smaller of (1) or (2)   5,000
4)   Nontaxable social security benefits $1,500    
5)   Excess adjusted gross income
($11,500 – $7,500) ÷ 2 		2,000    
6)   Add lines 2 and 3     3,500
7)   Subtract line 6 from line 3
(Do not enter less than -0-) 		  1,500
8)   Multiply line 7 by 15% (.15)   225
9)   Enter the amount from Form 1040A, line 28 246    
10)   Enter any amounts from Form 1040A, line 29 -0-    
11)   Subtract line 10 from line 9     246
12)   Credit
(Enter the smaller of line 8 or line 11) 		    $225

His credit is $225. He enters $225 on line 30 of Form 1040A. The Schedule 3 for James Davis is not shown.

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