Schedule R – What is the Schedule R Anyway?

July 12, 2013 by Michael Siebert · Leave a Comment
Filed under: Tax Credits 

Photo by Jen Ren at Flickr.com

Schedule R is Credit For the Elderly or the Disabled.  It’s purpose is to provide a measure of financial relief for low-income senior citizens and taxpayers who are unable to engage in any kind of gainful employment as a result of their disability.

 

You may be able to take the credit if you are 65 or older.  If you are under age 65, you must be permanently and totally disabled, receive taxable disability income for 2012, and on the first day of the tax year you did not reach mandatory retirement age.

 

As with all tax credits, there is a set of income limitations that may or may not qualify you for the credit.  It is posted below:

Then you generally cannot take the credit if:

If you are…

Then amount on Form 1040A, line 22, or Form 1040, Line 38, is… (AGI)

Or you received

Single, head of household, or qualifying widower $17,500 or more $5,000 or more of nontaxable social security or other nontaxable pensions, annuities, or disability income
Married filing jointly and only one spouse is eligible for the credit $20,000 or more $5,000 or more of nontaxable social security of other nontaxable pensions, annuities, or disability income
Married filing jointly and both spouses are eligible for the credit $25,000 or more $7,500 or more of nontaxable social security or other nontaxable pensions, annuities, or disability income
Married filing separately and you lived apart from your spouse for all of 2012 $12,500 or more $3,750 or more of nontaxable social security or other nontaxable pensions, annuities, or disability income

 

Figuring the credit is a little tricky but the IRS can figure the credit for you if you are doing everything by hand.  If you are filing Form 1040, check box c on line 53, and enter “CFE” on the line next to the box.  Attach Schedule R to your return.

 

How does the IRS determine what is permanent and total disability?

  1. You cannot engage in any substantial gainful activity because of a physical or mental condition
  2. A qualified physician determines that the condition has lasted or can be expected to last continuously for at least a year or can lead to death.

 

Taxable Disability Income is the total amount you were paid under your employer’s accident and health plan or pension plan that is included in your income as wages instead of wages for the time you were absent from work because of permanent and total disability.  This is different from Social Security Disability which is never taxable.

 

After you have reached mandatory retirement age, disability income does not include any money received from your employer’s pension plan.

 

Also, you may need a physician statement located in the Schedule R instructions.  This to certify you were permanently and totally disabled on the date you retired.  This is not filed with the tax return but is to be kept with your records.  You don’t need a physician’s statement if you filed one for 1983 or an earlier year, or you filed for tax years after 1983 and the physician signed on line B of the physician statement.  Line B reads “There is no reasonable probability that the disabled condition will ever improve…..”

 

The Department of Veterans Affairs can certify that people are permanently and totally disabled.  If this be the case, you can use VA Form 21-0172 instead of a physician’s statement.  The form must be signed by a VA authorized person.  Visit your local VA regional office for the form or to ask questions.

 

Remember, the IRS can figure the credit for you, or your software can.  If you are inclined to do it by hand, just make sure to read every line carefully and include all of the amounts in question.  It is one of the more complicated credits to compute.  The amount of credit can be reduced if you received certain types of nontaxable pensions, annuities, or disability income.

 

The amount of credit you can claim is generally limited to the amount of your tax. Use the Credit Limit Worksheet in the Instructions for Schedule R to determine if your credit is limited.

 

So how does a taxpayer end up in the situation to be able to claim a Schedule R credit?  It’s very rare, but if you have taxable disability income, be sure to check in case you do qualify.

 

 

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Below are some links that may help:

http://www.irs.gov/pub/irs-pdf/f1040sr.pdf
http://www.irs.gov/pub/irs-pdf/i1040sr.pdf
http://www.irs.gov/publications/p524/index.html
http://www.irs.gov/pub/irs-pdf/p554.pdf

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