If your physical or mental condition leaves you unable to work, the IRS considers you permanently and totally disabled. That entitles you to claim several tax breaks, including the Tax Credit for the Elderly or Disabled. You're disabled if you can't perform "substantial gainful work" in the words of the IRS.
You must have a doctor's statement attached to your tax return to claim the disability credit. The doctor must confirm that you've been disabled for at least the past year or that you'll stay disabled for the next 12 months. A third option for taking the credit is if the doctor says your condition is terminal. If you're able to do occasional paid work -- cleaning your parents' house when you have the strength for it, say -- that doesn't disqualify you for disability.
To qualify for the credit, you must be getting disability income under your workplace accident, health or pension plan. The plan has to pay you the income as a substitute for the wages you'd earn if your disability hadn't sidelined you. Payments that are not specifically for disability retirement do not count. As of 2012, the maximum credit is $5,000 or your total disability income, whichever is smaller. If you and your spouse are both disabled, the limit is $7,500.
The IRS can figure the credit for you, or you can calculate it yourself. The initial amount is the smaller of your disability income or the dollar limit. from this you subtract non-taxable Social Security income and other retirement or disability listed by the IRS in Publication 524. Next, you subtract any "excess adjusted gross income" you have -- income exceeding the IRS cut-off as figured in 524. If you have any of the initial amount left, that becomes your credit.
The Earned Income Tax Credit is normally only available to low-income people who work and earn money. If you're disabled, receiving disability retirement benefits and under retirement age, you can count your benefits as earned income and apply for the credit. This only applies to benefits from your employer's retirement plan. If you receive disability payments from an insurance policy you bought yourself, from Social Security or from the military, those don't qualify you for the EITC.
- Jupiterimages/Photos.com/Getty Images
- Can I Get the Earned Income Credit With a Dependent if I Didn't Work?
- Do the Disabled Qualify for a Roth IRA?
- Can You Claim a Sibling Older Than You with a Disability on a Tax Return?
- Does Disability Income Count Toward Your Adjusted Gross Income?
- Are Disability Benefits Considered Earned or Unearned Income?
- Do You Have to Pay Federal Tax on VA Disability Pay?