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@compuserve.com ---------- 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. ---------- 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 ---------- 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). ---------- End of Document