Computing Your Credit
Figuring out the amount of your credit is a multi-step process that can get complicated. The IRS has detailed information and worksheets to help you. The IRS will also calculate your credit if you ask for the help. Generally, you figure out the amount of your credit by:
(Step 1) Determining your initial amount, which is either $7,500, $5,000 or $3,750. This number is based upon your filing status, AGI and non-taxable benefits.
(Step 2) Figuring your non-taxable benefits, such as Social Security retirement and disability benefits and Tier I Railroad Retirement benefits.
(Step 3) Taking your AGI and (1) subtract from that $7,500 if you're filing single, head of household or qualifying widow; subtract $10,000 if married filing jointly; subtract $5,000 if you're married filing separately and you don't live with your spouse. Divide that result by 2.
(Step 4) Adding Steps 2 and 3 together. If that sum is equal to or more than Step 1, you can't take the credit. If it's less, you can take the credit.
(Step 5) Subtract the Step 4 number from Step 1. Multiply the result by 15% to determine your credit.
Generally, the amount of credit is limited to the amount of the taxes you owe. If your credit is more than the taxes you owe, you can't claim a refund for the difference. For example, say you owe $500 in taxes, but your disability credit is $600. You may claim the $500 credit, which will lower your tax bill to $0. You can't claim a refund for $100 ($600 credit minus $500 taxes owed).
If you're over 65 years old, you might qualify for the "Elderly Credit." Generally, you figure out the amount of this credit the same way as the disability credit. The main difference is that there's no disability requirement.
Questions for Your Attorney
- If I'm "disabled" for purposes of state disability benefits, am I "disabled" for purposes of the federal tax credit?
- My wife and I both qualify for the disability tax credit. Can we file separately? Should we?
- Should I let the IRS figure out my credit? If I do, what can I do if I don't agree with the determination?