You can figure the credit yourself (see the explanation that follows), or the IRS will figure it for you. See Credit Figured for You, later.

Figuring the credit yourself. If you figure the credit yourself, fill out the front of either Schedule R (if you are filing Form 1040) or Schedule 3 (if you are filing Form 1040A). Next, fill out Part III of either Schedule R or Schedule 3.

There are four steps in Part III to determine the amount of your credit:
  

1. Determine your overall income limit (lines 10-12).
2. Total any nontaxable social security and certain other nontaxable pensions and disability benefits you received (lines 13a, 13b, and 13c).
3. Determine your excess adjusted gross income (lines 14-17).
4. Determine your credit (lines 18-20).

These steps are discussed in more detail next.

Step 1. Determine Overall Income Limit

To figure the credit, you must first determine your overall income limit. See Table 34-1. Overall Income Limits.

Overall income limit for persons under age 65. If you are a qualified individual under age 65, your overall income limit cannot be more than your taxable disability income. This limit affects you only if one of the following applies:

1. Your filing status is single, head of household, or qualifying widow(er) with dependent child and your taxable disability income is less than $5,000,
2. Your filing status is married filing a joint return and:
   1. Your spouse is also a qualified individual under age 65 and your combined taxable disability income is less than $7,500,
   2. Your spouse is under age 65 and not a qualified individual and your taxable disability income is less than $5,000, or
   3. Your spouse is age 65 or older and your taxable disability income is less than $2,500, or
3. Your filing status is married filing separately and your taxable disability income is less than $3,750.

Step 2. Total Certain Nontaxable Pensions and Benefits

You must reduce your overall income limit by the total amount of nontaxable social security and certain other nontaxable payments (listed below) you receive during the year.

Enter these nontaxable payments on line 13a or 13b, and total them on line 13c. If you are married filing a joint return, you must enter the combined amount of nontaxable payments both you and your spouse receive.

Worksheets are provided in the Form 1040 or Form 1040A instructions to help you determine if any part of your social security benefits (or equivalent railroad retirement benefits) is taxable.

Include the following nontaxable payments in the amounts you enter on lines 13a and 13b.

• Nontaxable social security payments. This is the nontaxable part of the amount of benefits shown in box 5 of Form SSA-1099, which includes disability benefits, before deducting any amounts withheld to pay premiums on supplementary Medicare insurance, and before any reduction because of receipt of a benefit under worker's compensation.

  Do not include a lump-sum death benefit payment you may receive as a surviving spouse, or a surviving child's insurance benefit payments you may receive as a guardian.

• Social security equivalent part of tier 1 railroad retirement pension payments that are not taxed. This is the nontaxable part of the amount of benefits shown in box 5 of Form RRB-1099.
• Nontaxable pension or annuity payments or disability benefits that are paid under a law administered by the Department of Veterans Affairs (VA).

  Do not include amounts received as a 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, or as a disability annuity under section 808 of the Foreign Service Act of 1980.

• Pension or annuity payments or disability benefits that are excluded from income under any provision of federal law other than the Internal Revenue Code.

  Do not include amounts that are a return of your cost of a pension or annuity. These amounts do not reduce your overall income limit.

You should be sure to take into account all of the nontaxable amounts you receive. These amounts are verified by the IRS through information supplied by other government agencies.

Step 3. Determine Excess Adjusted Gross Income

You also must reduce your overall income limit by your excess adjusted gross income. Figure your excess adjusted gross income on lines 14 through 17.

You figure your excess adjusted gross income as follows:

1. Subtract from your adjusted gross income the amount shown for your filing status in the following list:
   1. $7,500 if you are single, a head of household, or a qualifying widow(er) with a dependent child,
   2. $10,000 if you are married filing a joint return, or
   3. $5,000 if you are married filing a separate return and you and your spouse did not live in the same household at any time during the tax year.
2. Divide the result of (1) by 2.

Step 4. Determine Your Credit

To determine if you can take the credit, you must add the amounts in Step 2 and Step 3.

Table 2. If steps 2 and 3..Then...

Figuring the credit. If you can take the credit, subtract the total of Step 2 and Step 3 from the amount in Step 1 and multiply the result by 15%. This is your credit.

In certain cases, the amount of your credit may be limited. See Limits on Credit, later.

Example. You are 66 years old and your spouse is 64. Your spouse is not disabled. You file a joint return on Form 1040. Your adjusted gross income is $14,630. Together you received $3,200 from social security, which was nontaxable. You figure the credit as follows:

1) Overall income limit		$5,000
2) Subtract the total of:
a) Social security and other   nontaxable pensions	$3,200
b) Excess adjusted gross   income   [($14,630 - $10,000) � 2]	2,315	5,515
3) Balance (Not less than -0-)		-0-
4)Credit		-0-

You cannot take the credit since your nontaxable social security (line 2a) plus your excess adjusted gross income (line 2b) is more than your amount on line 1.

Limits on Credit

The amount of your credit may be limited if:

1. The amount of your credit is more than your tax liability, or
2. You file Form 2441, Child and Dependent Care Credit.

Be sure to read your form instructions before claiming your credit.

Tax credit not refundable. Your credit for the elderly or the disabled cannot be more than the amount of your tax liability. Therefore, you cannot get a refund for any part of the credit that is more than your tax.

Credit Figured for You

If you choose to have the Internal Revenue Service (IRS) figure the credit for you, read the following discussions for filing Form 1040 or Form 1040A. If you want the IRS to figure your tax, see chapter 31.

Form 1040. If you want the IRS to figure your credit, see Form 1040 Line Entries under Tax Figured by IRS in chapter 31.

Form 1040A. If you want the IRS to figure your credit, see Form 1040A Line Entries under Tax Figured by IRS in chapter 31.

Examples

The following examples illustrate the credit for the elderly or the disabled. The overall income limits are taken from Table 34-1, shown earlier.

Example 1. Jerry Ash is 68 years old and single, and files Form 1040A. He received the following income for the year:

Nontaxable social security	$3,120
Interest (taxable)	215
Pension (all taxable)	3,600
Wages from a part-time job	4,245

Jerry's adjusted gross income is $8,060 ($4,245 + $3,600 + $215). Jerry figures the credit on Schedule 3 (Form 1040A) as follows:

1) Overall income limit		$5,000
2) Subtract the total of:
a) Social security and other nontaxable pensions	$3,120
b) Excess adjusted gross income [($8,060 - $7,500) � 2]	280	3,400
3) Balance		$1,600
4)Credit (15% of $1,600)		$  240

Jerry's credit is $240. He files Schedule 3 (Form 1040A) and shows this amount on line 27 of Form 1040A.

Example 2. James Davis is 58 years old and single, and files Form 1040A. Two years ago he retired on permanent and total disability, and he is still permanently and totally disabled. He filed the required physician's statement with his return for the year he retired on disability, so this year he checks the box in Part II of Schedule 3.

He received the following income for the year:

Nontaxable social security	$3,000
Interest (taxable)	100
Taxable disability pension	8,400

James' adjusted gross income is $8,500 ($8,400 + $100). He figures the credit on Schedule 3 as follows:

1) Overall income limit		$5,000
2) Taxable disability pension		$8,400
3) Smaller of (1) or (2)		$5,000
4) Subtract the total of:
a) Nontaxable disability benefits (social security)	$3,000
b) Excess adjusted gross income [($8,500 - $7,500) � 2]	500	3,500
5) Balance (Not less than 0)		$1,500
6)Credit (15% of $1,500)		$  225

His credit is $225. He enters $225 on line 27 of Form 1040A.

Example 3. William White is 53. His wife Helen is 49. William had a stroke 10 years ago and retired on permanent and total disability. He is still permanently and totally disabled because of the stroke. In November of last year, Helen was injured in an accident at work and retired on permanent and total disability.

William received nontaxable social security disability benefits of $3,000 during the year and a taxable disability pension of $6,000. Helen earned $9,200 from her job and received a taxable disability pension of $1,000. Their joint return on Form 1040 shows adjusted gross income of $16,200 ($6,000 + $9,200 + $1,000).

Helen got her doctor to complete the physician's statement in the instructions for Schedule R. Helen is not required to include the statement with her return, but she must keep it for her records.

William had filed a physician's statement with their return for the year he had the stroke. His doctor had signed on line B of that physician's statement to certify that William was permanently and totally disabled. William must fill out Part II of Schedule R. He checks the box in Part II and writes his first name in the space above line 2.

William and Helen use Schedule R to figure their $135 credit for the elderly or the disabled. They attach Schedule R to their joint return and enter $135 on line 42 of Form 1040. See their filled-in Schedule R and Helen's filled-in physician's statement on the next three pages.

Schedule R, Pg 1

Schedule R, Pg 2

Helen's physician's statement

Previous | First | Next

Publication 17 | 1998 Tax Year Archives | Tax Help Archives | Home