What special elderly tax breaks are there?
If you know an elderly or disabled individual, make sure that they know about special tax relief that may be available to them. The Internal Revenue Service extends a special credit to older taxpayers called the Credit for the Elderly or the Disabled. This tax break allows individuals and couples to reduce the amount of their income tax by their allowable credit. There is a special elderly and disabled tax credit is available to individuals who are:
- 65 years of age before the close of the tax year or
- under age 65 but are retired and were permanently and totally disabled when they retired
The credit is 15% of an applicable initial amount based on an individual’s filing status and reduced by certain income that is computed on IRS Form 1040. If you are a U.S. citizen or resident alien, you may qualify for this credit if before the end of 2014.
The elderly tax credit is as follows:
- Single individual – $5,000
- Married individuals, joint return, one spouse is a qualified individual – $5,000
- Married individuals, joint return, both spouses are qualified individuals – $7,500
- Married individual, separate return – $3,750
What amount of elderly tax credit to claim?
This initial amount of the credit is then reduced by amounts received as a pension, annuity, or disability benefits that are excludable from gross income and are payable under the Social Security Act (Title II), the Railroad Retirement Act of 1974, a Veterans Affairs program, or that are otherwise excluded under a non-Code provision. TurboTax and other online tax filing software will determine if someone is able to take the elderly tax credit by asking several questions when the return in completed. However, it is important to not miss this step in the tax preparation process.
Restrictions on Elderly Tax Credit
For permanently and totally disabled individuals under age 65, the applicable initial amount noted above cannot exceed the amount of disability income for the tax year. Someone is considered permanently and totally disabled if they are unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or to last for a continuous period of not less than 12 months.
This impairment should be substantiated by a letter from a certified physician kept in the taxpayer’s records. It is important to have this kind of documentation because it is something that the IRS will check heavily upon on an audit.
Filing Schedule R to Claim Elderly Tax Credit
If you meet the IRS qualifications, you’ll need to complete Schedule R to claim your credit. In Part 1 of Schedule R, answer the form questions relating to your age and disability status. Your answers in that section determine what part of the form you’ll complete next. If you are disabled, you’ll go on to Part 2 to verify your medical condition. If you meet the age standard, you can skip Part 2 and go on to figure your credit in Part 3.
Additional IRS Information Elderly Tax Credit:
- Publication 524, Credit for the Elderly or the Disabled
- Schedule R (Form 1040A or 1040) (.pdf), Credit for the Elderly or the Disabled