Elderly or Permanently and Totally Disabled Tax Credit

Definition

The Elderly or Permanently and Totally Disabled Tax Credit is a nonrefundable tax credit that can provide a significant reduction in taxes owed by eligible elderly or permanently disabled taxpayers. The credit permits a maximum allowable amount of up to $1,125, which is calculated as 15% of $7,500. Eligibility and the amount of the credit are influenced by the individual’s Adjusted Gross Income (AGI) and Social Security benefits in excess of a base amount.

Examples

Single Taxpayer: An elderly or permanently disabled taxpayer, who files as Single and has an AGI of $7,900 and annual Social Security benefits of $1,200, may have his/her credit reduced based on their income exceeding a certain threshold.
Married Filing Jointly: A married couple, where at least one spouse is elderly or permanently disabled, could be eligible for the credit. However, their available credit would be reduced if their combined AGI and Social Security benefits exceed the stipulated base amounts.
Head of Household: An elderly taxpayer filing as Head of Household may also be eligible for the credit but would need to consider how their specific filing status and income levels may impact their available credit.

FAQs

Who qualifies as “elderly” for this tax credit?

An individual qualifies as elderly if they are 65 years or older before the end of the tax year.

How is “permanently and totally disabled” defined for this tax credit?

A person is considered permanently and totally disabled if they cannot engage in any substantial gainful activity due to a medically determinable physical or mental impairment which is expected to last for a continuous period of at least 12 months or result in death.

Social Security benefits above a specific base amount will reduce the available tax credit.

What is the Adjusted Gross Income (AGI) threshold for this credit?

The AGI threshold varies based on filing status but generally, higher AGIs result in reduced credits.

Can the elderly or permanently disabled tax credit be taken in conjunction with other tax credits?

Yes, but the overall tax liability must be considered. Since this credit is nonrefundable, it can only reduce the taxes owed to zero; it won’t result in a refund.

Adjusted Gross Income (AGI): The total gross income of an individual minus specific deductions. AGI is critical in determining eligibility for various tax credits and deductions.
Nonrefundable Tax Credit: A tax credit that can reduce the tax owed to zero but cannot result in a refund.
Social Security Benefits: Payments made to qualified retirees and disabled people, and to their spouses, children, and survivors.

Online References

Suggested Books for Further Studies

“The Ernst & Young Tax Guide: Comprehensive Advice For All Your Personal Taxes”
“J.K. Lasser’s Your Income Tax Professional Edition 2023”
“Tax Deductions for Professionals” by Stephen Fishman J.D.

Elderly or Permanently and Totally Disabled Tax Credit: Tax Law Basics Quiz

### Who is eligible for the elderly or permanently and totally disabled tax credit? - [x] Individuals aged 65 or older before the end of the tax year. - [ ] Individuals under 60 years old. - [ ] Only individuals with children. - [ ] Any taxpayer with a disability. > **Explanation:** The credit applies to those aged 65 or older, or who meet the definition of "permanently and totally disabled." ### What is the maximum allowable amount for this tax credit? - [x] $1,125 - [ ] $7,500 - [ ] No limit - [ ] $500 > **Explanation:** The maximum allowable credit is $1,125, which is 15% of $7,500. ### Does Adjusted Gross Income (AGI) influence the amount of the credit? - [x] Yes, higher AGI can reduce the credit. - [ ] No, AGI does not matter. - [ ] Only deductions influence the credit. - [ ] Only Social Security benefits influence the credit. > **Explanation:** Higher AGI can reduce the available tax credit. ### Are Social Security benefits considered when calculating this credit? - [x] Yes, benefits exceeding a base amount reduce the credit. - [ ] No, they are not considered. - [ ] Only if they are over a specific threshold. - [ ] Only under special conditions. > **Explanation:** Social Security benefits over a base amount reduce the credit. ### What type of tax credit is the elderly or permanently disabled tax credit? - [ ] Refundable tax credit - [x] Nonrefundable tax credit - [ ] Partially refundable tax credit - [ ] Fully refundable tax credit > **Explanation:** This is a nonrefundable tax credit which can reduce taxes owed to zero but not below. ### Can part-year residents claim this credit? - [x] Yes, if they meet the criteria. - [ ] No, they cannot. - [ ] Only full-year residents can claim the credit. - [ ] Only temporary residents can claim it. > **Explanation:** Part-year residents may claim the credit if they qualify as elderly or disabled within the defined terms. ### Does the credit reduce taxable income directly? - [ ] Yes, it reduces taxable income directly. - [x] No, it reduces the tax owed. - [ ] Only under certain conditions. - [ ] Only if it's the primary source of income. > **Explanation:** The credit reduces the tax owed, not taxable income. ### At what age is someone considered elderly for the purposes of this credit? - [x] 65 years - [ ] 62 years - [ ] 60 years - [ ] 70 years > **Explanation:** Individuals aged 65 or older qualify as elderly for the tax credit. ### When must a disability qualify as permanent and total by? - [ ] At any point in life - [x] Expected for at least 12 months or result in death - [ ] Within 5 years of diagnosis - [ ] After 20 years of work > **Explanation:** The disability must be expected to last for at least 12 months or result in death to qualify. ### Can this credit result in a tax refund? - [ ] Yes, always. - [ ] No, never. - [x] No, because it is nonrefundable. - [ ] Only in specific cases. > **Explanation:** Being a nonrefundable credit, it can only reduce the tax owed to zero but cannot result in a refund.

Thank you for exploring the details of the Elderly or Permanently and Totally Disabled Tax Credit and challenging yourself with our quiz. Happy learning!