If you are over age 65 or are retired due to a disability, you may be eligible for a separate tax credit designed to help the nation's seniors and disabled.
Even better than a deduction, the Senior Tax Credit for the Elderly and Disabled could take up to $7,500 directly off of your tax bill. (Deductions can only reduce your tax bill in proportion to your tax rate.)
To qualify for the credit this year, you must meet two sets of criteria.
You are at least age 65 or meet these three conditions: you are retired due to a disability, accepted taxable disability income for the 2018 tax year, and had not reached the mandatory retirement age for your employer by January 1 of 2018.
To be qualified under the disability criteria, you must have a signed statement from a physician certifying that you can't "engage in gainful activity" because of a physical or mental condition. The same goes if the condition has either lasted for at least twelve months or is likely to do so, or that death is expected to result from the condition.
Your adjusted gross income (AGI) or your combination of non-taxable disability income, pension annuity income, and Social Security income falls below threshold limits listed in IRS Publication 524, "Credit for the Elderly or the Disabled". Limits on AGI range from $12,500 to $25,000, while limits on the non-taxable income path range from $3,750 to $7,500.
To calculate the credit, you must fill out Schedule R. IRS Publication 524 contains the instructions to help you fill out Schedule R and determine if you qualify for this tax credit.
Schedule R contains three separate sections. In Part I, you select the box that corresponds to your filing status, age, and disability status. This box determines the starting amount of your credit – $3,750, $5,000, or $7,500. Part II is for those qualifying by disability instead of age, requiring a statement of permanent and total disability by a physician. Part III walks you through the series of adjustments to your credit based on your status and other income sources.
Once the credit is calculated, enter the credit value in line 54 of Schedule 3, which should be attached to your Form 1040, and also attach your Schedule R to the tax form. Select box "c" on line 54 and write "Schedule R" in the adjacent blank. Note that the Senior Tax Credit for the Elderly and Disabled is a non-refundable credit, meaning that you can't receive a credit larger than the remaining taxes that you owe even if you qualify for a larger credit.
If you find the instructions overwhelming, the IRS can calculate your credit for you. Check the box in part I of Schedule R that applies to you. Next, fill out Part II (if applicable). Then include any relevant income in lines 11, 13a, and 13b of Part III. Finally, enter "CFE" in line 54 of Schedule 3.
As an alternative, you can file your taxes electronically using tax software that will automatically calculate the tax credit for you. If you can't afford tax software, consider using the IRS Free File system for those with incomes below $66,000.
If you think there's a chance that you may qualify for the Senior Tax Credit for the Elderly and Disabled, take a few moments to review Publication 524 and see if you can save money on your taxes. Never overlook any opportunity to lower your tax bill.