Tax provisions for PWD -- DISABTAX.TXT (fwd)
F. Pennell
fpennell at u.washington.edu
Sun Dec 1 20:16:35 PST 1996
Here are some articles on tax provisions for people with disabilities
provided by the National Council On Disabilities. Francie Pennell
Subject: Tax provisions for PWD -- DISABTAX.TXT
I thought some information about disability related tax
provisions may be useful as we approach the end of a calendar
year. I searched the IRS web site (www.ustreas.gov) and found
two disability related documents. After these, I'm including a
relevant document from the Department of Justice BBS
(202-514-6193).
Since Congress frequently changes the tax code and many
parameters adjust automatically each year, this information
should be used more for general concepts than particular details.
Check with the IRS or an accountant for current specifications
before filing.
Jamal Mazrui
National Council on Disability
Email: 74444.1076 at compuserve.com
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Tax Highlights for Persons with Disabilities
This publication gives you a brief introduction to certain
tax laws of particular interest to people with disabilities.
It includes highlights of tax laws pertaining to:
Income,
Itemized deductions, and
Tax credits.
You will find most of the information you need to complete
your tax return in your form instruction package. If you need
additional information, you may want to order a free tax publication.
You may also want to take advantage of the other free tax
help services that IRS provides. Ordering publications and
forms.
To order free publications and forms, call 1-800-TAX-FORM
(1-800-829-3676). If you have access to TDD
equipment, you can call 1-800-829-4059. See your
tax package for the hours of operation. You can also write
to the IRS Forms Distribution Center nearest you. Check your
income tax package for the address.
If you have access to a personal computer and a modem, you
can also get many forms and publications electronically. See
How To Get Forms and Publications in your Form 1040 or 1040A
tax package for details. Asking tax questions.
You can call the IRS with your tax question Monday through
Friday during regular business hours. Check your telephone
book or your tax package for the local number or you can call
1-800-829-1040 (1-800-829-4059 for TDD users).
Braille tax materials.
Braille tax materials are available for review from any of
142 Regional Libraries for the Visually Impaired in conjunction
with the National Library Service for the Blind and Physically
Handicapped. To locate your nearest library write to the National
Library Service for the Blind and Physically Handicapped,
Library of Congress, 1291 Taylor St., NW, Washington, DC 20542.
Braille materials currently available for review are:
Publication 17, Your Federal Income Tax,
Publication 334, Tax Guide for Small Business,
Forms 1040, 1040A, 1040EZ, and related instructions, and
Tax Tables. Income
All income that is not specifically exempt is taxable. The
following discussions highlight some income items (both taxable
and nontaxable) that are of particular interest to persons
with disabilities. See Publication 525, Taxable and Nontaxable
Income, for more information. Dependent Care Assistance
You can exclude from income benefits provided under your employer's
qualified dependent care assistance plan. You may be able
to exclude up to $5,000. The care must be provided for your
dependent under the age of 13 or your spouse or dependent
who is not capable of self-care.
For more information get Form 2441, Child and Dependent Care
Expenses, and instructions if you file Form 1040. If you file
Form 1040A, get Schedule 2 (Form 1040A), Child and Dependent
Care Expenses for Form 1040A Filers, and the instructions.
For more detailed information, get Publication 503, Child
and Dependent Care Expenses. Social Security and Equivalent
Tier 1 Railroad Retirement Benefits
If you received social security or equivalent tier 1 railroad
retirement benefits in 1995, part of the amount you received
may be taxable. Supplemental security income (SSI) payments.
If you received any SSI payments during the year, do not include
these payments in your total social security benefits received.
They are not taxable for federal income tax purposes. Are
any of your benefits taxable?
If the only income you received during 1995 was your social
security or equivalent tier 1 railroad retirement benefits,
your benefits generally are not taxable and you probably do
not have to file a return.
If you received income during 1995 in addition to social security
or equivalent tier 1 railroad retirement benefits, part of
your benefits generally are taxable if your income is more
than:
$25,000 if you are single, head of household, or qualifying
widow(er),
$25,000 if you are married filing separately and lived apart
from your spouse for all of 1995,
$32,000 if you are married filing jointly, or
$-0- if you are married filing separately and lived
with your spouse at any time during 1995.
For more information, see the Form 1040 instructions for lines
20a and 20b or the Form 1040A instructions for lines 13a and
13b. More detailed information can be found in Publication
915, Social Security and Equivalent Railroad Retirement Benefits.
Disability Pensions
Generally, you must report as income any amount you receive
for your disability through an accident or health insurance
plan that is paid for by your employer. If both you and your
employer pay for the plan, report as income only the amount
you receive for your disability that is due to your employer's
payments. However, certain payments may not be taxable to
you. Your employer should be able to give you specific details
about your pension plan and tell you the amount you paid for
your disability pension. See Publication 525 for more information.
Military and Government Disability Pensions
Generally, you must report disability pensions as income.
But certain military and government disability pensions are
not taxable. For more information about military and government
disability pensions and VA benefits see Publication 525. Veterans'
benefits.
Disability benefits you receive from the Department of Veterans
Affairs (VA) are not included in your gross income. If you
are a military retiree and do not receive your disability
benefits from the VA, do not include in your income the amount
of disability benefits equal to the VA benefits to which you
are entitled.
Veterans' benefits paid under any law, regulation, or administrative
practice that was in effect on September 9, 1986, and administered
by the VA are not included in gross income. These include:
Education, training, or subsistence allowances
Grants for specially adapted homes for veterans with disabilities
Grants for motor vehicles and adaptive equipment for veterans
with disabilities. Other Payments
You may receive other payments that are related to your disability.
The following payments are not taxable.
Benefit payments from a public welfare fund, such as payments
due to blindness
Workers' compensation for an occupational sickness or injury
Compensatory and punitive damages for physical injury or
illness
Disability benefits under a no-fault car insurance policy
for loss of income or earning capacity as a result of injuries
Compensation for permanent loss or loss of use of a part
or function of your body, or for your permanent disfigurement.
Itemized Deductions
If you file Form 1040, you can either claim the standard deduction
or itemize your deductions. You must use Schedule A (Form
1040) to itemize your deductions. See your form instructions
for information on the standard deduction and the deductions
you can itemize. The following discussions highlight some
itemized deductions that are of particular interest to persons
with disabilities. Medical Expenses
You can deduct medical and dental expenses for you, your spouse,
and your dependents.
Medical expenses include payments you make for the diagnosis,
cure, mitigation, treatment, or prevention of disease or for
treatment affecting any part or function of the body. They
also include the cost of transportation for needed medical
care and payments for medical insurance.
You can deduct only the part of your medical and dental expenses
that is more than 7.5% of your adjusted gross income shown
on line 32, Form 1040.
In the discussions that follow, only the highlights are given.
For more detailed information, get Publication 502, Medical
and Dental Expenses. Special Items and Equipment
Your medical expenses can include payments for:
Artificial limbs, eyeglasses, and hearing aids
The part of the cost of braille books and magazines that
exceeds the price of regular books and magazines
Cost and repair of special telephone equipment for hearing-
impaired persons
Cost of equipment that displays the audio part of television
programs as subtitles for hearing-impaired persons
The cost and maintenance of a wheelchair or autoette
Cost and care of a guide dog or other animals aiding persons
with disabilities
A therapist or other person who gives patterning exercises
to a mentally retarded child
Special schools, if the main reason for using the school
is its resources for relieving the mental or physical disability,
such as schools that teach Braille or lip reading
Remedial language training to correct a condition caused
by a birth defect. Capital Expenses
Generally, if you pay for improvements to your home and the
main purpose is medical care, you can include the payments
in your medical expenses. Some of these improvements are:
Constructing entrance or exit ramps to your residence
Widening doorways at entrances or exits to your residence
Widening or otherwise modifying hallways and interior doorways
Lowering or modifying kitchen cabinets and equipment. Impairment-
Related Work Expenses
If you are an employee and have a physical or mental disability
that functionally limits your employment, or a physical or
mental impairment that substantially limits one or more of
your major life activities, you may be able to claim impairment-
related work expenses. These are your allowable business expenses
for attendant care at your workplace and other expenses in
connection with your workplace that allow you to work. Generally,
this includes those expenses that are:
Necessary for you to do your work satisfactorily,
For goods and services not required or used (other than
incidentally) in your personal activities, and
Not specifically covered under other income tax laws.
Employee business expenses are subject to a 2% of adjusted
gross income limit. However, the limit does not apply to impairment-
related work expenses.
If you have impairment-related work expenses, complete Form
2106, Employee Business Expenses, or Form 2106-EZ, Unreimbursed
Employee Expenses and attach it to your Form 1040. Tax Credits
This discussion highlights three tax credits that are of interest
to persons with disabilities. Child and Dependent Care Credit
Generally, if you pay someone to care for your dependent under
age 13 or your spouse or dependent who is not capable of self-
care, you may be able to get a credit of up to 30% of your
expenses. You must pay these expenses so you can work or look
for work.
You can only claim the credit if you file Form 1040 or 1040A.
You figure the credit on Form 2441 (Form 1040) or Schedule
2 (Form 1040A).
For more information, see the Form 1040 instructions for line
41 or the Form 1040A instructions for line 24a. More detailed
information can be found in Publication 503. Credit for the
Elderly or the Disabled
You may claim this credit if you are 65 or older, or retired
on disability and were permanently and totally disabled when
you retired.
You can only claim the credit if you file Form 1040 or 1040A.
You figure the credit on Schedule R (Form 1040), Credit for
the Elderly or the Disabled, or on Schedule 3 (Form 1040A),
Credit for the Elderly or the Disabled for Form 1040A Filers.
For more information, see the Form 1040 instructions for line
42 or the Form 1040A instructions for line 24b. More detailed
information can be found in Publication 524, Credit for the
Elderly or the Disabled. Earned Income Credit
Generally, for 1995 you can get this credit if you worked
and earned less than:
$ 9,230 and did not have a qualifying child,
$24,396 and had one qualifying child, or
$26,673 and had more than one qualifying child.
You have a qualifying child if the child:
Is your son, daughter, adopted child, grandchild, stepchild,
or foster child, and
Was at the end of the year under age 19 or a student under
age 24, or at any time during the year permanently and
totally disabled, and
Lived with you in the United States for more than half the
year (for all of the year if the child is your foster child).
U.S. military personnel stationed outside the U.S. on extended
active duty are considered to be living in the United States.
To figure the credit, use the Earned Income Credit Worksheet
in the instructions for Form 1040, 1040A, or 1040EZ. If you
have a qualifying child, you also have to complete Schedule
EIC and attach it to your Form 1040 or 1040A.
For more information, see the Form 1040 instructions for line
57, or the Form 1040A instructions for line 29c, or the Form
1040EZ instructions for line 8. More detailed information
can be found in Publication 596, Earned Income Credit. Household
Employers
Generally, if you pay someone to work in your home, such as
a babysitter or housekeeper, you may be a household employer
who has to pay employment taxes.
A person you get through a placement agency to work in your
home to care for a child or an elderly or disabled person
is not your employee if the agency sets the fee and exercises
control over the worker, such as requiring regular reports
and providing rules of conduct and appearance. In such cases
you do not have to pay employment taxes on the amount you
pay. But if an agency merely gives you a list of workers and
you hire one from that list, the worker may be your employee.
To find out if you have to pay employment taxes, see Publication
926, Household Employer's Tax Guide. Business Tax Incentives
If you own or operate a business, you should be aware of three
tax incentives for helping persons with disabilities. They
are:
Deduction for costs of removing architectural or transportation
barriers-- This is a deduction you can take for making
your facility or public transportation vehicle more accessible
to and usable by persons who are disabled or elderly.
See Chapter 11 in Publication 535, Business Expenses.
Disabled Access Credit--This credit is for expenses incurred
to provide access to persons with disabilities. See Chapter
31 in Publication 334, Tax Guide for Small Business.
Jobs Credit--This credit is for wages paid to persons
from targeted groups that have a particularly high unemployment
rate or other special employment needs. See Chapter 31
in Publication 334 for more information.
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Credit for the Elderly or the Disabled
This publication explains who qualifies for the credit for
the elderly or the disabled and how to figure this credit.
The maximum credit available is $1,125. You may be able to
take this credit if you are 65 or older, or if you retired
on permanent and total disability. Publication 554 Older Americans'
Tax Guide 967 The IRS Will Figure Your Tax Forms (and instructions)
Schedule R (Form 1040)
Credit for the Elderly or the Disabled Schedule 3 (Form 1040A)
Credit for the Elderly or the Disabled for Form 1040A Filers
See How To Get More Information, near the end of this publication
for information about getting these publications and forms.
Can You Take the Credit?
You can take the credit for the elderly or the disabled if:
You are a qualified individual and
Your income is not more than certain limits. Figures A and
B can be used as guides to see if you qualify. Read Figure
A first to see if you are a qualified individual. If you are,
go to Figure B to make sure your income is not too high to
take the credit.
You can only take the credit if you file Form 1040 or Form
1040A. You cannot take the credit if you file Form 1040EZ.
Figuring the credit.
You figure the credit on Schedule R (Form 1040), Credit for
the Elderly or the Disabled, or on Schedule 3 (Form 1040A),
Credit for the Elderly or the Disabled for Form 1040A Filers.
If you want, the IRS will figure the credit for you. See Credit
Figured for You, later. Figure A and B Qualified Individual
You are a qualified individual for this credit if you are
a U.S. citizen or resident and:
You are age 65 or older by the end of the tax year, or
You are under age 65 at the end of the tax year, and
You are retired on permanent and total disability,
You did not reach mandatory retirement age before 1996,
and
You received taxable disability income in 1996. Age 65.
You are considered 65 on the day before your 65th birthday.
Therefore, you are 65 by the end of the year if your 65th
birthday is on January 1 of the following year. U.S. Citizen
or Resident
You must be a U.S. citizen or resident (or be treated as a
resident) to take the credit. Generally, you cannot take the
credit if you were a nonresident alien at any time during
the tax year. Exceptions.
If you are a nonresident alien who is married to a U.S. citizen
or resident at the end of the tax year and you both choose
to be treated as U.S. residents and be taxed on your worldwide
income, you may be able to take the credit.
If you were a nonresident alien at the beginning of the year
and a resident at the end of the year, and you were married
to a U.S. citizen or resident at the end of the year, you
can both choose to be treated as U.S. residents for the entire
year and you may be allowed to take the credit. For information
on these choices, see Chapter 1 of Publication 519, U.S. Tax
Guide for Aliens. Married Persons
Generally, if you are married at the end of the tax year,
you and your spouse must file a joint return to take the credit.
If you and your spouse did not live in the same household
at any time during the tax year, you can file either joint
or separate returns and still take the credit.
If you meet all the following tests, you can file as head
of household and qualify to take the credit even if your spouse
lived with you during the first 6 months of the year if:
You file a separate return,
You paid more than half the cost of keeping up your home
during the tax year,
Your spouse did not live in your home at any time during
the last 6 months of the tax year,
Your home was, for more than half of the tax year, the main
home of your child (including a stepchild, adopted child,
or foster child),
You claimed or could have claimed that child as a dependent,
or you did not claim that child only because:
You allowed your spouse (the noncustodial parent) to claim
the child as a dependent by your written declaration (Form
8332, Release of Claim to Exemption for Child of Divorced
or Separated Parents, may be used for making the declaration),
or
Your spouse (the noncustodial parent) provided at least
$600 for the child's support and is entitled to claim the
child as a dependent because of a qualified pre-1985
agreement. Under Age 65
If you are under age 65, you can qualify for the credit only
if you are retired on permanent and total disability. You
are retired on permanent and total disability if:
You were permanently and totally disabled when you retired,
and
You retired on disability before the close of the tax year.
If you retired on disability before 1977, and were not permanently
and totally disabled at that time, you can qualify for the
credit if you were permanently and totally disabled on January
1, 1976, or January 1, 1977.
You are considered retired on disability, even if you do not
retire formally, when you have stopped working because of
your disability. Permanent and total disability.
You are permanently and totally disabled if you cannot engage
in any substantial gainful activity because of your physical
or mental condition. A physician must certify that the condition
has lasted or can be expected to last continuously for 12
months or more, or that the condition can be expected to result
in death. See Physician's statement, later. Substantial gainful
activity.
Substantial gainful activity is the performance of significant
duties over a reasonable period of time while working for
pay or profit, or in work generally done for pay or profit.
Full-time work (or part-time work done at your employer's
convenience) in a competitive work situation for at least
the minimum wage conclusively shows that you are able to engage
in substantial gainful activity. The minimum wage was $4.25
an hour from January 1, 1996, through September 30, 1996.
It is $4.75 an hour for the year beginning October 1, 1996.
It will be $5.15 an hour beginning September 1, 1997.
Substantial gainful activity is not work you do to take care
of yourself or your home. It is not unpaid work on hobbies,
institutional therapy or training, school attendance, clubs,
social programs, and similar activities. However, doing this
kind of work may show that you are able to engage in substantial
gainful activity.
The fact that you have not worked for some time is not, of
itself, conclusive evidence that you cannot engage in substantial
gainful activity.
The following examples illustrate the tests of substantial
gainful activity. Example 1.
Trisha, a sales clerk, retired on disability. She is 53 years
old and now works as a full-time babysitter for the minimum
wage. Even though Trisha is doing different work, she is able
to do the duties of her new job in a full-time competitive
work situation for the minimum wage. She cannot take the credit
because she is able to engage in substantial gainful activity.
Example 2.
Tom, a bookkeeper, retired on disability. He is 59 years old
and now drives a truck for a charitable organization. He sets
his own hours and is not paid. Duties of this nature generally
are performed for pay or profit. Some weeks he works 10 hours,
and some weeks he works 40 hours. Over the year he averages
20 hours a week. The kind of work and his average hours a
week conclusively show that Tom is able to engage in substantial
gainful activity. This is true even though Tom is not paid
and he sets his own hours. He cannot take the credit. Example
3.
John, who retired on disability, took a job with a former
employer on a trial basis. The purpose of the job was to see
if John could do the work. The trial period lasted for 6 months
during which John was paid the minimum wage. Because of John's
disability, he was assigned only light duties of a nonproductive
make-work nature. The activity was gainful because John was
paid at least the minimum wage. But the activity was not substantial
because his duties were nonproductive. These facts do not,
by themselves, show that John is able to engage in substantial
gainful activity. Example 4.
Joan, who retired on disability from employment as a bookkeeper,
lives with her sister who manages several motel units. Joan
assists her sister for 1 or 2 hours a day by performing duties
such as washing dishes, answering phones, registering guests,
and bookkeeping. Joan can select the time of day when she
feels most fit to perform the tasks undertaken. Work of this
nature, performed off and on during the day at Joan's convenience,
is not activity of a substantial and gainful nature even if
she is paid for the work. The performance of these duties
does not, of itself, show that Joan is able to engage in substantial
gainful activity. Sheltered employment.
Certain work offered at qualified locations to physically
or mentally impaired persons is considered sheltered employment.
These locations are in sheltered workshops, hospitals and
similar institutions, homebound programs, and Department of
Veterans Affairs (VA) sponsored homes. Compared to commercial
employment, pay is lower for sheltered employment. Therefore,
one usually does not look for sheltered employment if he or
she can get other employment. The fact that one has accepted
sheltered employment is not proof of the person's ability
to engage in substantial gainful activity. Physician's statement.
If you are under 65, you must have your physician complete
a statement certifying that you are permanently and totally
disabled. Attach the statement to your return. You can use
the physician's statement in Part II of either Schedule R
(Form 1040) or Schedule 3 (Form 1040A). However, check the
box on line 2 and do not attach a physician's statement if:
You filed a physician's statement for this disability for
1983 or an earlier year, or you filed a statement for tax
years after 1983 and your physician signed line B on the
statement, AND
Due to your continued disabled condition, you were unable
to engage in any substantial gainful activity during the
tax year. If you checked box 4, 5, or 6 in part I, print
in the space above the box on line 2 in Part II, the first
name(s) of the spouse(s) for whom the box is checked.
If you have not filed a physician's statement in a previous
year, or if the statement you filed did not meet these conditions,
your physician must complete the statement.
If you file a joint return and you checked box 5 in Part I
of either Schedule R or Schedule 3, you and your spouse must
each file a physician's statement. Attach a separate Schedule
R or Schedule 3 for your spouse with only Part II filled
out. Veterans.
If the Department of Veterans Affairs (VA) certifies that
you are permanently and totally disabled, you can file VA
Form 21-0172, Certification of Permanent Total Disability,
instead of the physician's statement. VA Form 21-0172
must be signed by a person authorized by the VA to do so.
You can get this form from your local VA regional office.
Disability income.
If you are under age 65, you can qualify for the credit only
if you have taxable disability income. Disability income must
meet the following two requirements:
The income must be paid under your employer's accident or
health plan or pension plan.
The income must be wages or payments in lieu of wages for
the time you are absent from work because of permanent
and total disability.
Any payment you receive from a plan that does not provide
for disability retirement is not disability income. Any lump-
sum payment for accrued annual leave that you receive when
you retire on disability is a salary payment and is not disability
income.
For purposes of the credit for the elderly or the disabled,
disability income does not include amounts you receive after
you reach mandatory retirement age. Mandatory retirement age
is the age set by your employer at which you would have had
to retire, had you not become disabled. Income Limits
If your income is more than certain income limits, you cannot
take the credit. You can use Figure B, shown earlier, to see
if you qualify for the credit based on your income. Find your
filing status in the left column of the table.
If your income is less than the amounts shown for your filing
status in the right column of Figure B, you may be able to
take the credit. If your income equals or exceeds the amounts
in Figure B, you cannot take the credit. Figuring the Credit
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 three steps to follow in Part III to determine the
amount on which you figure your credit:
Determine your overall income limit (lines 10-12 of
either Schedule R or Schedule 3).
Total any nontaxable social security or railroad retirement
benefits and other nontaxable pensions and disability benefits
you received (lines 13a, 13b, and 13c of either Schedule
R or Schedule 3).
Determine your excess adjusted gross income (lines 14-
17 of either Schedule R or Schedule 3).
These steps are discussed in more detail later.
Amount of credit. If (1) is more than the total of (2) and
(3), multiply the difference by 15% to get the amount of your
credit. If the total of (2) and (3) is more than (1), you
cannot take the credit. This computation is found in Part
III, lines 18-20 of either Schedule R or Schedule 3.
In certain cases the amount of your credit may be limited.
See Limits on Credit, later. Step 1. Determine Overall Income
Limit
To figure the credit, you must first determine your overall
income limit. See Table 1. Overall Income Limits for Schedule
R and Schedule 3. Overall income limits for persons under
age 65.
If you are a qualified individual under age 65, your overall
income limit cannot be more than your taxable disability income.
This limit affects you only if one of the following applies
to you:
Your filing status is single, head of household, or qualifying
widow(er) with dependent child and your taxable disability
income is less than $5,000,
Your filing status is married filing a joint return and:
Your spouse is also a qualified individual under 65 and
your combined taxable disability income is less than $7,
500,
Your spouse is under 65 and not a qualified individual and
your taxable disability income is less than $5,000, or
Your spouse is 65 or older and your taxable disability income
is less than $2,500, or
Your filing status is married filing separately and your
taxable disability income is less than $3,750. overall
income limits Step 2. Total Certain Nontaxable Income
Once you have determined your overall income limit, you must
reduce it 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 of either
Schedule R or Schedule 3, 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.
The following payments reduce your overall income limit.
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 Coast and Geodetic
Survey 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. Amounts that
are a return of your cost of a pension or annuity do not
reduce your overall income limit.
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 have to subtract the amount of your excess adjusted
gross income from the overall income limit used to figure
your credit.
You figure your excess adjusted gross income as follows:
Subtract from your adjusted gross income 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.
Figure your excess adjusted gross income on lines 14 through
17 of either Schedule R or Schedule 3.
If the total of your nontaxable social security or other nontaxable
pensions or disability benefits (line 13c of either Schedule
R or Schedule 3) plus your excess adjusted gross income (line
17 of either Schedule R or Schedule 3) equals or is more than
your overall income limit, you will not be able to take the
credit. 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) Overall income limit $5,000 2) Subtract the total of: a)
Social security and other nontaxable pensions $3,200 b) Excess
adjusted gross income [($14,630 - $10,000) /
2] 2,315 5,515 3) Balance (Not less than -0-
) -0- 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. Limits on Credit
Your credit may be limited because of the alternative minimum
tax.
The amount of your credit may be limited if:
You file Schedule C, C-EZ, D, E, or F (Form 1040),
and
The amount on Form 1040, line 22, is more than:
$33,750 if you are single or head of household,
$45,000 if married filing jointly or qualifying widow(er)
with dependent child, or
$22,500 if married filing separately.
For purposes of (2), include any tax-exempt interest from
private activity bonds issued after August 7, 1986, and any
net operating loss deduction.
If both (1) and (2) do not apply, your credit is not subject
to this limit. Enter the amount of the credit from Schedule
R, line 20, on Form 1040, line 40.
If you meet both (1) and (2), get Form 6251, Alternative Minimum
Tax-Individuals, and complete it through line 24. The
limit on your credit will be the smaller of:
Your credit as computed, or
Your regular tax (line 38 of Form 1040) minus -
Any credit for child and dependent care expenses, and
Any amount shown on line 24, Form 6251.
Enter the smaller of (1) or (2) on Form 1040, line 40. If
(2) is the smaller amount, also write AMT on the dotted line
next to line 40, Form 1040, and replace the amount on Schedule
R, line 20, with that amount. Tax credit not refundable.
Your credit for the elderly or the disabled cannot be more
than the amount of your tax liability. Therefore, you cannot
get a refund for any part of the credit that is more than
your tax. 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 file Form 1040
and want the IRS to figure your credit, attach Schedule R
to your return and enter CFE on the dotted line next to line
40 of Form 1040. Check the box on Schedule R for your filing
status and age, and fill in lines 11 and 13, if applicable.
Also, fill in Part II, if applicable.. If you file Form 1040A
and want the IRS to figure your credit, attach Schedule 3
to your return and print CFE next to line 24b 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. Assume that none of the taxpayers in these
examples had to file a Form 6251. The overall income limits
are taken from Table 1. Example 1.
Jerry Ash is 68 years old and single, and files Form 1040A.
He received the following income for the year:
Nontaxable social security $3,120 Interest (taxable) 215 Pension
(all taxable) 3,600 Wages from a part-time job 4,245
Jerry's adjusted gross income is $8,060 ($4,245 + $3,
600 + $215). Jerry figures the credit on Schedule 3 (Form
1040A) as follows:
1) Overall income limit $5,000 2) Subtract the total of: a)
Social security and other nontaxable pensions $3,120 b) Excess
adjusted gross income [($8,060 - $7,500) /
2] 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 24b of Form 1040A. See the filled-
in Schedule 3 for Jerry Ash, later. Example 2.
James Davis is 58 years old and single, and files Form 1040.
Two years ago he retired on permanent and total disability,
and he is still permanently and totally disabled. He filed
the required physician's statement with his return for the
year he retired on disability, so this year he checks the
box in Part II of Schedule R.
He received the following income for the year:
Nontaxable social security $3,000 Interest (taxable) 100 Taxable
disability pension 8,400
James' adjusted gross income is $8,500 ($8,400 + $100).
He figures the credit on Schedule R as follows:
1) Overall income limit $5,000 2) Taxable disability pension
$8,400 3) Smaller of (1) or (2) $5,000 4) Subtract the total
of: a) Nontaxable disability benefits (social security) $3,
000 b) Excess adjusted gross income [($8,500 -
$7,500) / 2] 500 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 40 of Form 1040.
Example 3.
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 Part II of Schedule R. William
had filed a physician's statement with their return for the
year he had the stroke. His doctor had signed on line B to
certify that William was permanently and totally disabled.
William does not have to file another physician's statement
this year. He must fill out Part II of a separate Schedule
R (not shown) and attach it to the joint return. 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 enter this amount on
line 40 of Form 1040. See their filled-in Schedule R, later.
How To Get More Information
You can get help from IRS in several ways. Free publications
and forms.
To order free publications and forms, call 1-800-
TAX-FORM (1-800-829-3676). You can
also write to the IRS Forms Distribution Center nearest you.
Check your income tax package for the address. Your local
library or post office also may have the items you need.
For a list of free tax publications, order Publication 910,
Guide to Free Tax Services. It also contains an index of tax
topics and related publications and describes other free tax
information services available from IRS, including tax education
and assistance programs.
If you have access to a personal computer and modem, you also
can get many forms and publications electronically. See Quick
and Easy Access to Tax Help and Forms in your income tax package
for details. If space permitted, this information is at the
end of this publication. Tax questions.
You can call the IRS with your tax questions. Check your income
tax package or telephone book for the local number, or you
can call 1-800-829-1040. TTY/TDD equipment.
If you have access to TTY/TDD equipment, you can call
1-800-829-4059 to ask tax questions or to
order forms and publications. See your income tax package
for hours of operation.
Ash Schedule 3 Page 1 Ash Schedule 3 Page 2 White Schedule
R Page 1 White Schedule R Page 2
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Disability-Related Tax Provisions Applicable to Businesses
The three disability-related provisions in the Internal
Revenue Code applicable to businesses described below are of
particular interest to businesses and people with disabilities:
1) Targeted Jobs Tax Credit (Title 26, Internal Revenue Code,
section 51)
Employers are eligible to receive a tax credit in the amount of
40 percent of the first $6,000 of first-year wages of a new
employee who has a disability. There is no credit after the
first year of employment. For an employer to qualify for the
credit, a worker must have been employed for at least 90 days or
have completed at least 120 hours of work for the employer. The
Revenue Reconciliation Act of 1990, Public Law 101-508, extended
this tax credit through December 31, 1991.
2) Tax Deduction to Remove Architectural and Transportation
Barriers to People with
Disabilities and Elderly Individuals (Title 26, Internal
Revenue Code, section 190)
Allows a deduction for "qualified architectural and
transportation barrier removal expenses." Only expenditures that
are for the purpose of making any facility or public
transportation vehicle owned or leased by the taxpayer for use in
connection with his or her trade or business more accessible to,
and usable by, handicapped and elderly individuals are eligible
for the deduction. The taxpayer must establish, to the
satisfaction of the Secretary of the Treasury, that the resulting
removal of the barrier meets the standards promulgated by the
Secretary with the concurrence of the U.S. Architectural and
Transportation Barriers Compliance Board.
For purposes of this section, a "handicapped individual" is any
individual who has a physical or mental disability (including,
but not limited to, deafness and blindness) which, for that
individual, constitutes or results in a functional limitation to
employment, or who has any physical or mental impairment that
substantially limits one or more major life activities of that
individual.
The deduction may not exceed $15,000 for any taxable year. (The
maximum deduction had been $35,000 prior to passage of Public Law
101-508 in 1990, which lowered the maximum deduction.)
3) Disabled Access Tax Credit (Title 26, Internal Revenue Code,
section 44)
This tax credit is available to "eligible small businesses" in
the amount of 50 percent of "eligible access expenditures" for
the taxable year that exceed $250 but do not exceed $10,250.
"Eligible small businesses" are those businesses with either:
a) $1 million or less in gross receipts for the preceding tax
year
OR
b) 30 or fewer full-time employees during the preceding tax year.
"Eligible access expenditures" means amounts paid or incurred by
an eligible small business for the purpose of enabling the small
business to comply with applicable requirements under ADA.
Certain types of expenditures are listed as included under the
meaning of the term "eligible access expenditures." These
include amounts paid or incurred:
i) for the purpose of removing architectural, communication,
physical, or transportation barriers that prevent a business from
being accessible to, or usable by, individuals with disabilities;
ii) to provide qualified readers, taped texts, and other
effective methods of making visually delivered materials
available to people with visual impairments;
iii) to provide qualified interpreters or other effective methods
of making aurally delivered materials available to individuals
with hearing impairments;
iv) to acquire or modify equipment, or devices for individuals
with disabilities, or
v) to provide other similar services, modifications, materials,
or equipment.
Expenditures that are not necessary to accomplish the above
mentioned purposes are not eligible. Expenses in connection with
new construction are not eligible. "Disability" has the same
meaning as it does in the ADA. Barrier removals or the provision
of services, modifications, materials, or
equipment must meet standards promulgated by the Secretary in
order to be eligible.
Example: Company A purchases equipment to meet its reasonable
accommodation obligation under ADA for $8,000. The amount by
which $8,000 exceeds $250 is $7,750. Fifty percent of $7,750 is
$3,875. The employer may take a tax credit in the amount of
$3,875 on its next tax return.
Example: Company B removes a physical barrier in accordance with
its reasonable accommodation obligation under ADA. The barrier
removal meets standards promulgated by the Secretary.
The company expends $12,000 on this barrier removal. The amount
by which $12,000 exceeds $250 but not $10,250 is a full $10,000.
Fifty percent of $10,000 is $5,000. Company B is eligible for a
$5,000 tax credit on its next tax return.
For further information on these provisions, contact the Internal
Revenue Service, Office of the Chief Counsel, P.O. Box 7604, Ben
Franklin Station, Washington D.C. 20044 (202) 566-3292 (voice
only).
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