With the turn of the new year, many start to think about new year resolutions and how to best plan for the year in front of them. One thing many Mobile residents often think about is filing their taxes. No one likes paying income tax, but sometimes there is no way around it. The good news for many of those living on Social Security disability or other permanent or total disability programs, is that there is a tax credit to ease their tax burden.
The tax credit is so aptly named the Credit for the Elderly or Disabled and it applies to two different groups of people. The first group is 65 or older by the end of the year, or younger than that age and retired early due to permanent or total disability. Beyond those requirements, the elderly or disabled person must also meet certain income limits to qualify for the credit. There are two different sets of income limits: one that examines a person’s adjusted gross income for the year and one that looks at the total nontaxable Social Security disability benefits, pensions, annuities and disability income.
If you meet both of these income limits, you can qualify for the credit. The credit is meant for low-income retirees, not those living on a pension or other means of non-taxable income. Therefore, if you have a cushy retirement (good for you!) this tax credit often won’t apply. However, Roth accounts distributions are not considered in calculating AGI.
One must then fill out a schedule R to begin claiming the tax credit. It will add a certain amount of work to your tax return, but think about paying yourself by the hour while you do it. That would be especially true if you receive a refund due to the Credit for the Elderly or Disabled. This tax credit is a great way to save money on taxable income, including disability income.
Source: fool.com, “Living on Social Security? Here’s a Tax Credit Just for You,” Wendy Connick, December 31, 2017