Publication 554: Older Americans' Tax Guide; Credits

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Table of Contents

This chapter briefly discusses the credit for the elderly or disabled, the child and dependent care credit, and the earned income credit. You may be able to reduce your federal income tax by claiming one or more of these credits.

Credit for the Elderly
or the Disabled

This section explains who qualifies for the credit for the elderly or the disabled and how to figure this credit. For more information, see Publication 524, Credit for the Elderly or the Disabled.

You can take the credit only if you file Form 1040 or Form 1040A. You cannot take the credit if you file Form 1040EZ.

Credit figured for you.

If you choose to have the IRS figure the credit for you, see Publication 524. If you want the IRS to figure your tax, see Publication 967, The IRS Will Figure Your Tax.

Can You Take the Credit?

You can take the credit for the elderly or the disabled if:

You are a qualified individual, and
Your income is not more than certain limits.

See Figures 5–A and 5–B, later.

Qualified Individual

You are a qualified individual for this credit if you are a U.S. citizen or resident, and either of the following applies.

You were age 65 or older at the end of 2003.
You were under age 65 at the end of 2003 and all three of the following statements are true.
1. You retired on permanent and total disability (explained later).
2. You received taxable disability income for 2003.
3. On January 1, 2003, you had not reached mandatory retirement age (defined later under Disability income).

Age 65. You are considered to be age 65 on the day before your 65th birthday. Therefore, you are age 65 at the end of the year if your 65th birthday is on or before January 1 of the following year.

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Figures 5-A and 5-B. Are you a qualified individual?

U.S. citizen or resident.

You must be a U.S. citizen or resident (or be treated as a resident) to take the credit. Generally, you cannot take the credit if you were a nonresident alien at any time during the tax year.

Exceptions.

You may be able to take the credit if you are a nonresident alien who is married to a U.S. citizen or resident at the end of the tax year and you and your spouse choose to treat you as a U.S. resident. If you make that choice, both you and your spouse are taxed on your worldwide income.

If you were a nonresident alien at the beginning of the year and a resident at the end of the year, and you were married to a U.S. citizen or resident at the end of the year, you may be able to choose to be treated as a U.S. resident for the entire year. In that case, you may be allowed to take the credit. For information on these choices, see chapter 1 of Publication 519, U.S. Tax Guide for Aliens.

Married persons.

Generally, if you are married at the end of the tax year, you and your spouse must file a joint return to take the credit. However, if you and your spouse did not 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.

Head of household.

You can file as head of household and qualify to take the credit even if your spouse lived with you during the first 6 months of the year if you meet all of the tests. See Publication 524 and Publication 501.

Under age 65.

If you are under age 65 at the end of the year, you can qualify for the credit only if you are retired on permanent and total disability. You are retired on permanent and total disability if:

You were permanently and totally disabled when you retired, and
You retired on disability before the end of the tax year.

Even if you do not retire formally, you are considered retired on disability when you have stopped working because of your disability. If you retired on disability before 1977, see Publication 524.

Permanent and total disability.

You are permanently and totally disabled if you cannot engage in any substantial gainful activity because of your physical or mental condition. A 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. See Physician's statement, later.

Substantial gainful activity.

Substantial gainful activity is the performance of significant duties over a reasonable period of time while working for pay or profit, or in work generally done for pay or profit.

Full-time work (or part-time work done at the employer's convenience) in a competitive work situation for at least the minimum wage conclusively shows that you are able to engage in substantial gainful activity.

Substantial gainful activity is not work you do to take care of yourself or your home. It is not unpaid work on hobbies, institutional therapy or training, school attendance, clubs, social programs, and similar activities. However, doing this kind of work may show that you are able to engage in substantial gainful activity.

The fact that you have not worked for some time is not, of itself, conclusive evidence that you cannot engage in substantial gainful activity.

Physician's statement.

If you are under 65, you must have your physician complete a statement certifying that you were permanently and totally disabled on the date you retired.

You do not have to file this statement with your Form 1040 or Form 1040A, but you must keep it for your records. The instructions for either Schedule R (Form 1040) or Schedule 3 (Form 1040A) include a statement your physician can complete and that you can keep for your records.

If you got a physician's statement in an earlier year and, due to your continued disabled condition, you were unable to engage in any substantial gainful activity during 2003, you may not need to get another physician's statement for 2003. For a detailed explanation of the conditions you must meet, see the instructions for Part II of Schedule R (Form 1040) or of Schedule 3 (Form 1040A). If you meet the required conditions, you must check the box on line 2 of Part II of Schedule R (Form 1040) or of Schedule 3 (Form 1040A).

If you checked box 4, 5, or 6 in Part I of either Schedule R or Schedule 3, print in the space above the box on line 2 of Part II the first name(s) of the spouse(s) for whom the box is checked.

Disability income.

If you are under age 65, you can qualify for the credit only if you have taxable disability income.

Disability income must meet the following two requirements.

It 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 in lieu of wages) for the time you are absent from work because of permanent and total disability.

Payments that are not disability income.

Any payment you receive from a plan that does not provide for disability retirement is not disability income. Any lump-sum payment for accrued annual leave that you receive when you retire on disability is a salary payment and is not disability income.

For purposes of the credit for the elderly or the disabled, disability income does not include amounts you receive after you reach 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.

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.

You may be able to claim this credit if you pay someone to care for your dependent who is under age 13 or for your spouse or dependent who is not able to care for himself or herself. The credit can be up to 35% of your expenses. To qualify, you must pay these expenses so you can work or look for work.

If you claim this credit, you must include on your return the name and taxpayer identification number (generally the social security number) of each qualifying person. If the correct information is not shown, the credit may be reduced or disallowed.

You also must show on your return the name, address, and the taxpayer identification number of the person(s) or organization(s) that provided the care.

The earned income credit (EIC) is available to persons with or without a qualifying child. This section will list separately the rules that persons with a qualifying child and persons without a qualifying child must meet to get the credit. After you have read the rules, if you think you may qualify for the credit, get Publication 596, Earned Income Credit. You also can find information in the instructions for Form 1040 (line 63), Form 1040A (line 41), or Form 1040EZ (line 8).

The social security number must be issued by the Social Security Administration to a U.S. citizen or to a person who has permission to work in the United States. If your social security card says Not valid for employment, you cannot get the earned income credit.

The earned income credit is available to persons with or without a qualifying child. Some of the rules are the same, but some of the rules only apply to persons with a qualifying child or to persons without a qualifying child.

Generally, if you are a nonresident alien for any part of the year, you cannot claim the credit. To claim the earned income credit under this section, you must meet all the following rules.

Generally, if you are a nonresident alien for any part of the year, you cannot claim the earned income credit. In order to take the earned income credit under this section, you must meet all the following rules.

If you expect to qualify for the earned income credit in 2004, you can choose to receive advance payments of part of the credit in your regular paycheck.

You can request advance payments of the credit for 2004 by completing a 2004 Form W–5. See Publication 596 or the instructions for Form W–5 for more information on the advance earned income credit.

You must file a 2003 return to report what you already received as an advance payment in 2003 and to get any additional earned income credit.

You must have at least one qualifying child and qualify for the earned income credit to get the advance payment of the credit in your pay.