If you rely on additional income along with disability payments, there’s a tax credit that could save you thousands on your tax bills each year. As part of ongoing changes to tax laws, the federal government appears to be keeping the tax credit for the elderly or the disabled. The House voted to eliminate the credit in 2017, but the combined bill settled on at the end of the year preserved it for at least the next few tax cycles. This could be a major boon for people with disabilities, especially those who need to stretch their annual funds as far as possible.
Amount You Could Deduct
Based on your taxable income, you could reduce your tax bill by up to $7,500. This may represent major savings for those who pay taxes, and you could even see a major refund if you have refundable credits as well as the tax credit for the elderly or the disabled. IRS Schedule R is the form required for determining the credit, and it allows a maximum credit of $3,500 for both individuals and married couples.
The credit applies to those who are totally disabled and have additional taxable income, regardless of the type of physical or mental disability. Those applying for the tax credit for the elderly or the disabled must meet mandated adjusted taxable income standards that may vary by year and status. For the 2017 tax year, individuals can receive no more than $17,500 in adjustable gross income (AGI) and $5,000 in disability benefits to qualify for the credit. AGI allows individuals to subtract factors such as student loan interest to lower tax burdens.
The tax credit for the elderly or the disabled is a nonrefundable tax credit, meaning it can only reduce your tax liability instead of becoming a direct refund to you. This means it might not be money in your pocket as it cannot reduce your liability below $0. Refundable credits are counted after all other deductions, including nonrefundable credits, according to standard IRS practice and procedure. This means you may see dramatic savings in your tax costs if you qualify for the credit, and combining it with refundable credits may enable a larger refund if the nonrefundable credit lowers your required payment enough.