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:
- Determine your initial amount (lines
10-12).
- Total any nontaxable social security and certain
other nontaxable pensions and benefits you received (lines 13a, 13b,
and 13c).
- Determine your excess adjusted gross income
(lines 14-17).
- Determine your credit (lines 18-20).
These steps are discussed in more detail next.
Step 1. Determine Initial Amount
To figure the credit, you must first determine your initial amount.
See Table 1.
Initial amounts for persons under age 65.
If you are a qualified individual under age 65, your initial amount
cannot be more than your taxable disability income.
Step 2. Total Certain Nontaxable Pensions and Benefits
You must reduce your initial amount by the total amount of
nontaxable social security and certain other nontaxable payments you
receive during the year.
Enter these nontaxable payments on lines 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 instructions for Forms 1040 and
1040A 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 initial amount.
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 initial amount 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:
- Subtract from your adjusted gross income (line 34 of Form
1040 or line 19 of Form 1040A) the amount shown for your filing status
in the following list.
- $7,500 if you are single, a head of household, or
a qualifying widow(er) with a dependent child,
- $10,000 if you are married filing a joint return,
or
- $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.
- 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.
Can you take the credit?
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
Limit 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) Initial amount |
$5,000 |
| 2) Subtract the total of: |
| a) Nontaxable social security
and other nontaxable pensions |
$3,200 |
| b) Excess adjusted gross income
[($14,630 - $10,000) x 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.
Limit on Credit
The amount of credit you can claim may be limited. Use one of the
following worksheets (or the worksheet in the instructions for
Schedule 3, Form 1040A, or Schedule R, Form 1040, whichever applies)
to determine the amount of credit you can claim if any of the
following apply.
- You file Form 1040A and the credit you figured on line 20 of
Schedule 3, is more than the tax on Form 1040A, line 26.
- You file Form 1040 and the credit you figured on line 20 of
Schedule R is more than the amount on Form 1040, line 42 (regular tax
plus any alternative minimum tax), minus any foreign tax credit on
Form 1040, line 43.
- You are claiming the credit for child and dependent care
expenses on:
- Form 1040A, line 27, or
- Form 1040, line 44.
If (1), (2), and (3) above do not apply, you do not need to use a
worksheet to figure a limit on your credit. Claim the full amount of
the credit you figured on Schedule 3 (Form 1040A) or Schedule R (Form
1040).
Credit Limit Worksheet (Form 1040)
| 1) Enter the amount from Form 1040, line 42,
minus any amount on Form 1040, line 43 |
|
| 2) Enter the amount, if any, from Form
1040, line 44 |
|
| 3) Subtract line 2 from line 1 |
|
|
| 4) Enter the credit you first figured on
Schedule R, line 20 |
|
|
| 5) Credit. Enter the smaller of
line 3 or line 4
here and on Form 1040, line 45. If line 3
is the smaller amount, also replace the
amount on Schedule R, line 20, with that
amount |
|
Credit Limit Worksheet (Form 1040A)
| 1) Enter the amount from Form 1040A, line
26 |
|
| 2) Enter the amount, if any, from Form
1040A, line 27 |
|
| 3) Subtract line 2 from line 1 |
|
|
| 4) Enter the credit you first figured on
Schedule
3, line 20 |
|
|
| 5) Credit. Enter the smaller of
line 3 or line 4
here and on Form 1040A, line 28. If line 3
is the smaller amount, also replace the
amount on Schedule 3, line 20, with that
amount |
|
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 Publication 967.
Form 1040.
If you want the IRS to figure your credit, attach Schedule R
to your return and enter "CFE" on the dotted line next to
line 45 of Form 1040. Check the box in Part I of Schedule R for your
filing status and age. Fill in Part II and lines 11 and 13 of Part
III if they apply to you.
Form 1040A.
If you want the IRS to figure your credit, attach Schedule 3
to your return and print "CFE" next to line 28 of Form 1040A.
Check the box in Part I of Schedule 3 for your filing status and age.
Fill in Part II and lines 11 and 13 of Part III, if they apply to you.
Examples
The following examples illustrate the credit for the elderly or the
disabled. The initial amounts are taken from Table 1.
Example 1.
James Davis is 58 years old and single, and files Form 1040A. In
1998 he retired on permanent and total disability, and he is still
permanently and totally disabled. He got the required physician's
statement in 1998 and kept it with his tax records. His physician
signed on line B of the statement. This year James checks the box in
Part II of Schedule 3. He does not need to get another statement for
2000.
He received the following income for the year:
| Nontaxable social security |
$2,500 |
| Interest (taxable) |
100 |
| Taxable disability pension |
9,400 |
James' adjusted gross income is $9,500 ($9,400 + $100). He figures
the credit on Schedule 3 as follows:
| 1) Initial amount |
$5,000 |
| 2) Taxable disability pension |
$9,400 |
| 3) Smaller of (1) or (2) |
$5,000 |
| 4) Subtract the total of: |
| a) Nontaxable disability benefits
(social security) |
$2,500 |
| b) Excess adjusted gross income
[($9,500 - $7,500) x 2] |
1,000 |
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 28 of Form 1040A. The
Schedule 3 for James Davis is not shown.
Example 2.
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 their return for the year, 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 the joint
return and enter $135 on line 45 of Form 1040. See their filled-in
Schedule R and Helen's filled in physician's statement, later.
Example 3.
Jerry Ash is 68 years old and single, and files Form 1040A. He
received the following income for the year:
| Nontaxable social security |
$2,120 |
| Interest (taxable) |
215 |
| Pension (all taxable) |
5,600 |
| Wages from a part-time job |
4,245 |
Jerry's adjusted gross income is $10,060 ($4,245 + $5,600 + $215).
Jerry figures the credit on Schedule 3 (Form 1040A) as follows:
| 1) Initial amount |
$5,000 |
| 2) Subtract the total of: |
| a) Nontaxable social security and
other nontaxable pensions |
$2,120 |
| b) Excess adjusted gross income
[($10,060 - $7,500) x 2] |
1,280 |
3,400 |
| 3) Balance (Not less than -0-) |
$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 28 of Form 1040A. See the filled-in Schedule 3 for
Jerry Ash, later.
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