Key Takeaways
- Disability tax credits are available to US citizens and residents who are either 65 or older or permanently and totally disabled, as certified by a physician.
- Qualifying disability income must come from a former employer's accident, health, or pension plan–not from other sources, such as early distributions from a 401K account.
- Your total income can’t exceed certain thresholds before you can claim the credit.
- You can claim the credit is claimed on Form 1040, Schedule R.
Do I qualify for disability tax credits?
The Credit for the Elderly or the Disabled tax credit is available to citizens and resident, 65 or older at any time during the tax year. Taxpayers who are under 65 years of age can still claim the tax credit if they are retired on permanent and total disability, or if they receive taxable disability income during the year and do not reach the mandatory retirement age by the first day of the tax year.
If you’re unclear what the age is for mandatory retirement, it’s the age when an employer forces employees to retire and it’s different for different businesses.
What is permanent disability?
The IRS defines a permanent disability as a physical or mental condition that prevents you from engaging in substantial gainful activity and that a physician determines that has lasted or can be expected to continuously last for at least a year or can lead to death.
It does not include activities that relate to ordinary personal and household maintenance. If you can still take care of your house and daily life, that doesn’t mean that you are capable of gainful employment and the IRS understands that. However, the level of household activity is a factor the IRS may consider in determining whether you have a permanent and total disability.
Claiming the credit also requires you to obtain a statement from your physician certifying that you are permanently and totally disabled.
TurboTax Tip:
The IRS defines a permanent disability as a physical or mental condition that prevents you from engaging in substantial gainful activity and that a physician determines that has lasted or can be expected to continuously last for at least a year or can lead to death.
Is disability income taxable?
The disability income you receive has to be paid under a former employer’s accident, health or pension plan to satisfy the requirements of the tax credit. The income will be taxable in the same manner as employment wages during all periods you are absent from work.
Disability income does not include any payments you receive from a plan that is not specifically designated to provide disability benefits, such as taking early distributions from a 401K account or obtaining cash payment for an accrual of personal and vacation days.
What are the income limits for disability tax credits?
The IRS requires that your total income can’t exceed certain thresholds before you can claim the credit. If your filing status is Single, Head of Household or Qualifying Surviving Spouse with a qualifying child, your adjusted gross income has to be less than $17,500 and your non-taxable Social Security and pension income cannot exceed $5,000.
If you file a joint return, your adjusted gross income can’t exceed $20,000 plus a maximum of $5,000 in social security and pension benefits.
How do I claim the credit?
If you meet all of the requirements, you can calculate the credit amount on the Schedule R attachment to your personal income tax return. However, if that sounds complicated, you can elect to have the IRS calculate the credit for you by checking the appropriate box on the Schedule R and leaving all other lines about the credit blank. The resulting credit amount varies based on your level of income.
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