People age 65 or older and those who have retired early due to disability can be eligible for a federal tax credit ranging from $3,750 to $7,500. The credit for the elderly or the disabled reduces federal income taxes related to disability income, but several qualifying rules apply.
- The credit for the elderly and disabled provides a $3,750-$7,000 tax credit for those who can meet specific age or disability requirements.
- Taxpayers aged 65 or older, and those who are permanently and totally disabled are eligible, as well as taxpayers in certain similar situations.
- Calculating your tax credit requires a few simple steps using IRS Schedule R.
Who Qualifies for Schedule R?
Schedule R (Form 1040) can help you figure the credit for the elderly or the disabled. To qualify, a taxpayer must be a U.S. citizen or resident alien who:
- Has reached age 65 before the last day of the tax year
- Has retired on disability before the last day of the tax year and was permanently and totally disabled when they retired
- Is under age 65 at the last day of the tax year but who retired on permanent and total disability, received taxable disability income, and has not yet reached mandatory retirement age as of January 1 of the new tax year
You're considered to be age 65 on the day before your 65th birthday, so you would be considered to be age 65 on December 31, 2021 if you were born on January 1, 1956.
The Disability Requirement
Internal Revenue Code section 22, paragraph (e) (3) states that, to qualify as "permanently and totally disabled," you can no longer perform any substantial gainful activity. Your impairment must be "medically determinable," and it can be either mental or physical. A qualified physician must certify the condition has lasted or can be expected to last continuously for at least 12 months, or it's likely to result in your death.
Retiring on Disability
You don't necessarily have to formally retire. You can be considered retired on disability if you've been forced to stop working because of your disability.
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 or payments instead of wages for the time you are absent from the workforce because of permanent and total disability.
Any payment you receive from a plan that doesn't provide for disability retirement isn't disability income. For example, a lump-sum payment for accrued annual leave that you receive when you retire on disability is a salary payment and it isn't disability income. Disability income doesn't include amounts you receive after you reach a mandatory retirement age set by your employer when you would have had to retire even if you hadn't become disabled.
The IRS provides an interactive interview on its website to walk you through the steps of determining if you qualify. Just answer some questions, and it will give you an answer. The interview takes about five minutes.
In addition to the other qualifying factors, a taxpayer’s adjusted gross income (AGI) must be lesser than or equal to the following amounts as of the 2021 tax year (the return you'll file in 2022).
|If your filing status is...||Your adjusted gross income must be less than or equal to...|
|Head of household||$17,499|
|Qualifying widow(er) with dependent child||$17,499|
|Married filing jointly and only one spouse qualifies||$19,999|
|Married filing jointly and both spouses qualify||$24,999|
|Married filing separately and you lived apart from your spouse for the entire year||$12,499|
How To Calculate the Credit
The tax credit is 15% of the initial amount, less the total of nontaxable Social Security and certain other nontaxable pensions, annuities, or disability benefits you've received. You must also add one-half of your adjusted gross income (AGI), less the AGI limitation amount. The equation would be:
- Calculate your initial amount.
- Add up your total nontaxable Social Security and other nontaxable pensions.
- Calculate your excess adjusted gross income and divide it by two.
- Add step 2 to step 3.
- Subtract the sum of steps 2 and 3 from the initial amount, then multiply the result by 15%.
This formula results in a tentative tax credit. The tentative amount is then compared to the federal tax liability as calculated using the "Credit Limit Worksheet" found in the Instructions for Schedule R. The final tax credit is the smaller of the tentative amount or the tax liability limit amount.
The Initial Amount
Your initial amount is the lesser of your taxable disability income or the following set amounts as of the 2021 tax year:
|If your filing status is...||The initial amount is the smaller of taxable disability income or the following set amounts...|
|Single, head of household, qualifying widow(er) with dependent child, married filing jointly and only one spouse qualifies||$5,000|
|Married filing jointly and both spouses qualify||$7,500|
|Married filing separately and you lived apart from your spouse for the entire year||$3,750|
Nontaxable Pension Benefits
The following sources of income are included when measuring the nontaxable portion of pension benefits:
- Nontaxable Social Security payments, before deducting certain Medicare premiums and workers' compensation benefits.
- Nontaxable Railroad Retirement Board benefits treated as Social Security
- Nontaxable pension, annuity, or disability payments from the Veterans Administration, with certain exceptions
- Any other pension, annuity, or disability benefit that is excluded from income
The following types of income are not included when measuring the nontaxable portion of pension benefits:
- Amounts that are treated as a return of your cost basis in the pension or annuity
- Disability annuity payable under Section 808 of the Foreign Service Act of 1980
- Any 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
The following AGI figures are used to calculate the credit:
|If your tax filing status is...||Your adjusted gross income limitation amount is...|
|Single, head of household, or qualifying widow(er)||$7,500|
|Married filing jointly||$10,000|
|Married filing separately||$5,000|
How to Claim the Credit
Claiming the credit for the elderly or the disabled requires filing two additional forms with your tax return. Schedule R shows your calculations as to how you arrived at the amount of your credit. You must then enter the total from this form in Line 6d of Schedule 3.
Frequently Asked Questions (FAQs)
Who qualifies for the senior tax credit?
You can qualify for the senior tax credit ("credit for the elderly or the disabled") If you are 65 or older by January 1 of the following year, you've retired on disability before the last day of the tax year and were permanently and totally disabled when you retired, you're under age 65 at the last day of the tax year but retired on permanent and total disability, or you've received taxable disability income and have not yet reached mandatory retirement age as of January 1 of the new tax year
What is the Schedule R credit for the elderly or people with disabilities?
The Schedule R credit refers to a worksheet the IRS provides that allows certain elderly or disabled people to receive a credit of between $3,750 and $7,500. The calculation for the credit factors in several figures, including your adjusted gross income and nontaxable benefits like Social Security.
IRS. "Credit for the Elderly or the Disabled at a Glance." Accessed Dec. 16, 2021.
IRS. "Schedule R (Form 1040)." Accessed Dec. 16, 2021.
IRS. "Publication 524: Credit for the Elderly or the Disabled (Draft)," Page 4. Accessed Dec. 16, 2021.
Legal Information Institute. "26 U.S. Code § 22. Credit for the Elderly and the Permanently and Totally Disabled." Accessed Dec. 16, 2021.
IRS. "2021 Instructions for Schedule R." Accessed Dec. 16, 2021.
IRS. "Publication 524: Credit for the Elderly or Disabled (Draft)," Pages 6-7. Accessed Dec. 16, 2021.
IRS. "Schedule 3 (Form 1040)." Accessed Dec. 16, 2021.