Do You Qualify for a Tax Credit for the Elderly or Disabled?

People ages 65 and up or retired due to a medical condition could get a big tax break

In the world of taxes, deductions are good things: They reduce your taxable income, which, in turn, lowers the amount of tax you pay.

Tax credits, on the other hand, are things of wonder. They reduce your tax bill directly, dollar for dollar. And if you are age 65 or older or receive disability income through your workplace, there’s a credit that could really brighten your Tax Day.

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The Credit for the Elderly and Disabled ranges from $3,750 to $7,500, depending on your income and filing status. If you owe $4,000 in taxes before the credit and you get a $3,750 credit, your tax bill will be just $250.

Note, however, that this particular tax credit is nonrefundable, in the parlance of the IRS, meaning if the credit you get is more than the tax you owe, you won't get a check for the difference. On the other hand, you won't owe any taxes, which is nice.

Qualifying for the tax credit

You can qualify for this tax credit if you are a U.S. citizen or legally resident immigrant and meet one of two eligibility criteria:

• You are 65 or older by the end of 2023. In a quirk of the tax law, you are considered to reach age 65 on the day before your 65th birthday. So, if you were born on Jan. 1, 1959, the IRS reckons you are 65 at the end of 2023.
• You are younger than 65 but have retired due to what the IRS terms “permanent and total disability,” received taxable disability income in 2023, and have not yet reached your employer's mandatory retirement age.

More specifically, you will need a note from a qualified physician that you can't engage in any “substantial gainful activity” because of your physical or mental health and that this condition can be expected to last at least 12 months or result in your death.

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As defined by the IRS, substantial gainful activity basically means the ability to perform “significant duties for pay" for which you earn at least the minimum wage rate from an employer. It doesn't mean keeping the house tidy, buying groceries or having a hobby. Work at subminimum wage as part of employment at so-called sheltered workshops for people with disabilities isn't considered substantial gainful activity, either.

As for the taxable disability income, it means payments that come from an employer's accident insurance, health plan or pension plan and are included in your wages (or paid in lieu of wages) while you are off work because of permanent and total disability.