Are you disabled or handicapped and unable to work? If so, you may be eligible for the disability tax credit. The disability tax credit may lower or eliminate any taxes you owe to the Internal Revenue Service. To claim the credit, you must be:
- Either a citizen of the United States or a resident alien (you have a “green card”);
- Under the age of 65 on December 31;
- Retired with a permanent and total disability;
- Receiving disability insurance or disability payments from an employer; and
- Younger than the mandatory retirement age set by your employer for retirement.
A permanent and total disability means that you cannot engage in or perform any substantial gainful activity because of a physical or mental condition. Substantial gainful activities are tasks or duties that you perform for income. Substantial gainful activity does not include activities that you perform for yourself, such as bathing, cooking, and shopping or hobbies such as attending school, social programs, or other similar activities. Sheltered employment, such as the type of work offered at qualified locations to people with physical or mental impairments, does not qualify as substantial gainful activity.
The fact that you have not worked for some time will not, by itself, convince a judge that you are unable to do any substantial gainful activity. Generally, a doctor must certify that your physical or mental condition may result in death or has lasted or can be expected to last for a continuous 12-month period.
Even if you satisfy the above-listed conditions, your income must be below a certain level to claim the credit. For the year 2008, the income limitations for different filing statuses were the following:
- Single/Qualifying Widow: Your adjusted gross income must be less than $17,500 and your non-taxable benefits (such as SSI) must be less than $5,000.
- Married Filing Jointly and your spouse satisfies the above conditions: Your adjusted gross income must be below $25,000, and your non-taxable benefits must be below $7,500;
- Married Filing Jointly and your spouse does not satisfy the above conditions: Your adjusted gross income must be below $20,000, and your non-taxable benefits must be below $5,000.
- Married Filing Separately: Your adjusted gross income must be less than $12,500, and your non-taxable benefits must be less than $3,750.
The disability tax credit is a nonrefundable credit, which means that it may reduce or eliminate the taxes you owe. However, you will not get a refund. You must use IRS Form 1040 or Form 1040A to claim this credit. You cannot use Form 1040EZ.
Figuring out the exact amount of the credit to which you are entitled is complicated. The IRS has worksheets to help you. There are also VITA (volunteer income tax assistance) sites in each New Jersey county where you may get free, in-person help with your tax preparation. For more information on the credit, you may contact the Tax Legal Assistance Project at Legal Services of New Jersey.
This article is from the September 2009 issue of Looking Out for Your Legal Rights®.
This information last reviewed 11/2/11.