It’s my annual “Taxes from A to Z” series! This time, it’s Tax Cuts and Jobs Act (TCJA) style. If you’re wondering whether you can claim home office expenses or whether to deduct a capital loss under the new law, you won’t want to miss a single letter.
C is for Credit for the Elderly or the Disabled.
If you are over the age of 65 or retired due to a permanent and total disability, you may be able to reduce your tax liability by claiming the Credit for the Elderly or the Disabled. The nonrefundable credit is per taxpayer, not per return: up to $750 for one qualifying individual and up to $1,125 for two qualifying individuals.
To qualify, you must be a U.S. citizen or resident alien. You typically can’t take the credit if you were a nonresident alien at any time during the tax year (exceptions apply).
To claim the credit, you must also be age 65 or older at the end of the year, or if you are under age 65, all three of the following statements must apply:
- You retired on permanent and total disability. You have a permanent and total disability if you can’t engage in any substantial gainful activity because of your physical or mental condition. A qualified 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.
- You received taxable disability income for 2018. Disability income must be paid under your employer’s accident or health plan or pension plan, and it must be included in your income as wages for the time you are absent from work because of permanent and total disability. Disability income doesn’t include the amounts you receive after you reach mandatory retirement age.
- On January 1, 2018, you had not reached the 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
You are considered to be age 65 on the day before your 65th birthday. As a result, if you were born on January 1, 1954, you are considered to be age 65 at the end of 2018.
If you are married at the end of the tax year, you and your spouse must file a joint tax return to claim the credit. However, if you and your spouse didn’t live in the same household at any time during the tax year, you can file either a joint return or separate returns and still take the credit.
If you’ve made it this far, you must still meet one more set of criteria: income limits.
The first income limit is based on the amount of your adjusted gross income (AGI). You’ll find your AGI on line 7 of the new form 1040:
Next, compare that number to the chart below based on your filing status. To qualify for the credit, your AGI—that line 7—must be less than the applicable number in the chart below:
The second limit is the total of nontaxable Social Security and other nontaxable pensions, annuities or disability income you received. Compare that number to the chart above based on your filing status. To qualify for the credit, the total of nontaxable Social Security and other nontaxable pensions, annuities or disability income you received must be less than the applicable number in the chart.
If your AGI, or your nontaxable pensions, annuities or disability income, are equal to or more than the income limits, you can’t take the credit.
To claim the credit, you must file Schedule R, Credit for the Elderly or the Disabled (downloads as a PDF). If it’s too complicated, the Internal Revenue Service (IRS) will figure it for you. Check the instructions for details (downloads as a PDF).
If you’re wondering whether the credit is still around, it is. Under the House tax reform bill, the credit would have been eliminated; however, the credit remained in place as part of the TCJA. You can claim it this year so long as you qualify.
For more Taxes From A To ZTM 2019, check out the rest of the series: