Tax Credit for the Elderly & Disabled – Qualifications & Limits

Definition

Tax Credits, such as the tax credit for the Elderly and Disabled, are credits applied to the taxes you owe. For instance, if you owe $3,000 in taxes and you have a credit for $500, then you only have to pay $2,500. The Tax Credit for the Elderly and Disabled is a credit for persons over 65 years of age, as well as persons under 65 and disabled. But, to receive the tax credit as a disabled individual, one must be retired on permanent and total disability (preventing an individual from being employable). And they must have received taxable disability income during the year. 

Discussion

While a tax credit is not a source of new funds or specifically funding for eldercare, it represents additional disposable income. And it can be used to reduce the overall cost of caring for an aging loved one. When combined with other options, it might make the difference between affording home care or assisted living or not having the option for either. 

Elderly and Disabled Tax Credit vs. Dependent Care Credit
For some families, depending on their individual tax situation, it may be advantageous to forego the Elderly and Disabled Tax Credit and have the elderly individual claimed as a dependent on the tax return of an adult child.  This would allow the adult child to use the Dependent Care Credit.  Worth noting though is that the Dependent Care Credit cannot be used for persons who live in skilled nursing facilities or assisted living residences.

The following three other tax related options may also help indirectly reduce the cost of eldercare.

1) Tax Deductions of an Elderly Dependent’s Medical Expenses

2) Federal Tax Credits for Elderly Dependent Care

3) State Tax Credits for Elderly Dependent Care

It can be difficult to determine how to structure one’s expenses and choose between the available tax credits and deductions to get the greatest tax savings. Online tax preparation services can greatly facilitate this process as they enable a tax filer to easily examine multiple scenarios and choose the best approach.

Qualifying

• Age – individuals must be age 65 or over by the end of December 2017 to claim this credit for 2018. It’s interesting to note, that for this tax credit, individuals are considered 65 years of age the day before their actual birthday. An exception to age exists for those who are under 65 years of age if they are retired on permanent and total disability and receive taxable disability income. For these individuals, one must have a physician statement declaring they had a permanent and total disability at the time of retirement.
• Citizenship – individuals must either be a U.S. citizen or a resident alien.
• Disabilities / Health – there are no health or disability requirements if the filer is 65 years or older. If younger, he or she must be retired on permanent and total disability and receive taxable disability income.
• Family Status –  Both married and single persons are eligible for this credit. But, in order for married couples to claim this credit, they must file their return jointly. One exception is if the couple qualifies as married living apart, which means they did not live together for the entire year.  
• Financial – this credit has eligibility limits based on the filer’s adjusted gross income or the total of one’s nontaxable Social Security and other nontaxable pension(s), disability income, and annuities. One’s filing status affects the limits as outlined in the table below.

Credit Limits

As of 2017, the maximum tax credit for the Elderly and Disabled Tax Credit ranges between $3,750 and $7,500. 

How to File

In order to claim the credit, you must fill out Schedule R: Elderly and Disabled Tax Credit when you file your federal return. Read the IRS Publication 524: Elderly and Disabled Tax Credit for more information.