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Taxmap/pubs/p524-001.htm#TXMP05909127 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.

Taxmap/pubs/p524-001.htm#TXMP0b303c4b 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 four steps in Part III to determine the amount of your credit:

1. Determine your initial amount (lines 10–12).
2. Total any nontaxable social security and certain other nontaxable pensions and benefits you received (lines 13a, 13b, and 13c).
3. Determine your excess adjusted gross income (lines 14–17).
4. Determine your credit (lines 18–24 of Schedule R or lines 18–22 of Schedule 3).

These steps are discussed in more detail next.

Taxmap/pubs/p524-001.htm#TXMP18ea0cb7 Step 1. Determine Initial Amount

To figure the credit, you must first determine your initial amount. See Table 1.

Taxmap/pubs/p524-001.htm#TXMP5cc0f6a9 Initial amounts for persons under age 65.

If you are a qualified individual under age 65, your initial amount cannot be more than your taxable disability income.

Taxmap/pubs/p524-001.htm#TXMP40d17c3e Step 2. Total Certain Nontaxable Pensions and Benefits

Step 2 is to figure the total amount of nontaxable social security and certain other nontaxable payments you received during the year.

Enter these nontaxable payments on lines 13a or 13b 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.

Include the following nontaxable payments in the amounts you enter on lines 13a and 13b.

• Nontaxable social security payments. This is the nontaxable part of the amount of benefits shown in box 5 of Form SSA-1099, Social Security Benefit Statement, 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 workers' 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, Payments by the Railroad Retirement Board.
• 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 National Oceanic and Atmospheric Administration 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.Do not include amounts that are a return of your cost of a pension or annuity. These amounts do not reduce your initial amount.
  

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.

Taxmap/pubs/p524-001.htm#TXMP1d9899ae Step 3. Determine Excess Adjusted Gross Income

You also must reduce your initial amount by your excess adjusted gross income. Figure your excess adjusted gross income on lines 14 through 17.

You figure your excess adjusted gross income as follows:

1. Subtract from your adjusted gross income (line 37 of Form 1040 or line 22 of Form 1040A) the amount shown for your filing status in the following list.
   1. $7,500 if you are single, a head of household, or a qualifying widow(er) with a dependent child,
   2. $10,000 if you are married filing a joint return, or
   3. $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.
2. Divide the result of (1) by 2.

Taxmap/pubs/p524-001.htm#TXMP43f9830b Step 4. Determine Your Credit

To determine if you can take the credit, you must add the amounts you figured in Step 2 and Step 3.

		IF the total of Steps 2 and 3 is ...			THEN ...
			equal to or more than the amount in Step 1				you cannot take the credit.
			less than the amount in Step 1				you can take the credit.

Taxmap/pubs/p524-001.htm#TXMP3e9cdec0 Figuring the credit.

If you can take the credit, subtract the total of Step 2 and Step 3 from the amount in Step 1 and multiply the result by 15%.

In certain cases, the amount of your credit may be limited. See Limit on credit, later.

Taxmap/pubs/p524-001.htm#TXMP36da8fc4
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.	Initial amount				$5,000
2.	Subtract the total of:
	a.	Nontaxable 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-
4.	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.

Taxmap/pubs/p524-001.htm#TXMP6b36526c Limit on credit.

The amount of credit you can claim may be limited.

Figure any limit on your credit on lines 21–24 of Schedule R or lines 21–22 of Schedule 3.

Taxmap/pubs/p524-001.htm#TXMP3193a5f8 Credit Figured for You

If you choose to have the Internal Revenue Service (IRS) figure the credit for you, read the following discussion for the form you will file (Form 1040 or Form 1040A). If you want the IRS to figure your tax, see Publication 967.

Taxmap/pubs/p524-001.htm#TXMP6015eb2a Form 1040.

If you want the IRS to figure your credit, attach Schedule R to your return and enter "CFE" on the dotted line next to line 48 of Form 1040. Check the box in Part I of Schedule R for your filing status and age. Fill in Part II and lines 11 and 13 of Part III if they apply to you.

Taxmap/pubs/p524-001.htm#TXMP376a4917 Form 1040A.

If you want the IRS to figure your credit, attach Schedule 3 to your return and print "CFE" next to line 30 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.

Taxmap/pubs/p524-001.htm#TXMP2300a28d Examples

Examples

The following examples illustrate the credit for the elderly or the disabled. The initial amounts are taken from Table 1.

Taxmap/pubs/p524-001.htm#TXMP3dbaca3b
Example 1.

James Davis is 58 years old, single, and files Form 1040A. In 1998 he retired on permanent and total disability, and he is still permanently and totally disabled. He got the required physician's statement in 1998 and kept it with his tax records. His physician signed on line B of the statement. This year James checks the box in Part II of Schedule 3. He does not need to get another statement for 2004.

He received the following income for the year:

Nontaxable social security		$ 1,500
Interest (taxable)		100
Taxable disability pension		11,400

James' adjusted gross income is $11,500 ($11,400 + $100). He figures the credit on Schedule 3 as follows:

1.	Initial amount				$ 5,000
2.	Taxable disability pension				11,400
3.	Smaller of line 1 or line 2				5,000
4.	Subtract the total of:
	a.	Nontaxable disability benefits (social security)	$1,500
	b.	Excess adjusted gross income ($11,500 - $7,500) ÷ 2	2,000		3,500
5.	Balance (Not less than -0-)				1,500
6.	Multiply line 5 by 15% (.15)				225
7.	Enter the amount from Form 1040A, line 28		358
8.	Enter any amount from Form 1040A, line 29		-0-
9.	Subtract line 8 from line 7				358
10.	Credit (Enter the smaller of line 6 or line 9)				$   225

His credit is $225. He enters $225 on line 30 of Form 1040A. The Schedule 3 for James Davis is not shown.

Taxmap/pubs/p524-001.htm#TXMP10c02ddc
Example 2.

William White is 53. His wife Helen is 49. William had a stroke 3 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 the physician's statement in the instructions for Schedule R. Helen is not required to include the statement with their return for the year, but she must keep it for her records.

William got a physician's statement for the year he had the stroke. His doctor had signed on line B of that physician's statement to certify that William was permanently and totally disabled. William has kept the physician's statement with his records. He checks the box in Part II of Schedule R and writes his first name in the space above line 2.

William and Helen use Schedule R to figure their $31 credit for the elderly or the disabled. They attach Schedule R to the joint return and enter $31 on line 48 of Form 1040. See their filled-in Schedule R and Helen's filled-in physician's statement, later.

Taxmap/pubs/p524-001.htm#w15046s01

Instructions for Physician's Statement           Taxpayer  1.  He or she cannot engage in any substantial gainful activity because of a physical or mental condition. If you retired after 1976, enter the date you retired in the space provided on the statement below.  2.  A physician determines that the disability has lasted or can be expected to last continuously for at least a year or can lead to death. Physician   A person is permanently and totally disabled if both of the following apply:   Physician's Statement Keep for Your Records     I certify that                    Helen A. White             Name of disabled person was permanently and totally disabled on January 1, 1976, or January 1, 1977, or was permanently and totally disabled on the date he or she retired. If retired after 1976, enter the date retired.     November 30, 2004         Physician: Sign your name on either A or B below. A The disability has lasted or can be expected to last continuously for at least a year                        Physician's signature      Date B There is no reasonable probability that the disabled condition will ever improve      Juanita D. Doctor      2/7/05      Physician's signature      Date Physician's name  Physician's address     Juanita D. Doctor  1900 Green St., Hometown, MD 20000

Taxmap/pubs/p524-001.htm#TXMP1a2c52af
Example 3.

Jerry Ash is 68 years old and single and files Form 1040A. He received the following income for the year:

Nontaxable social security		$2,000
Interest (taxable)		455
Pension (all taxable)		5,600
Wages from a part-time job		4,245

Jerry's adjusted gross income is $10,300 ($4,245 + $5,600 + $455). Jerry figures the credit on Schedule 3 (Form 1040A) as follows:

1.	Initial amount				$5,000
2.	Subtract the total of:
	a.	Nontaxable social security and other nontaxable pensions	$2,000
	b.	Excess adjusted gross income ($10,300 - $7,500) ÷ 2	1,400		3,400
3.	Balance (Not less than -0-)				1,600
4.	Multiply line 3 by 15% (.15)				240
5.	Enter the amount from Form 1040A, line 28		116
6.	Enter any amount from Form 1040A, line 29		-0-
7.	Subtract line 6 from line 5				116
8.	Credit (Enter the smaller of line 4 or line 7)				$  116

Jerry's credit is $116. He files Schedule 3 (Form 1040A) and shows this amount on line 30 of Form 1040A. See the filled-in Schedule 3 for Jerry Ash, later.