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What is the Elderly Tax Credit?

written by: wendyppp•edited by: Donna Cosmato•updated: 6/29/2011

Everyone has seen the question on the top of the tax forms that asks if you are over the age or disabled. However, have you ever wondered why it's there, or what it means? Let us examine the tax credit available to the elderly and the disabled to reduce the amount of tax owed.

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    Officially called the Credit for Elderly or Disabled, the elderly tax credit is a credit that can be taken to reduce the tax owed by people age 65 or over, or those under age 65 who have retired under a condition of total disability and are unable to sustain substantial gainful activity.

    Anyone over the age of 65 whose taxable income falls within the guidelines established qualifies to take the elderly tax credit to reduce their tax liability. Those under the age of 65 retired because of disability must meet certain other stringent requirements to qualify for the credit.

    People younger than 65 may qualify for the elderly tax credit if they have documentation from a doctor that states they suffer from a disabling condition that is expected to last longer than 12 months or to result in the death of the individual. In addition, the individual must be able to provide proof that he/she is unable to maintain substantial gainful activity as defined below.

    WHAT IS GAINFUL EMPLOYMENT?

    Substantial gainful activity is defined as any work that can be carried out in a competitive market that pays at least the minimum wage. This means that even though one cannot work at the same type of job as before, as long as one is able to perform the duties of some sort of job that pays the minimum wage. This means that a person who is unable to work at his regular form of employment, but can work as a clerk or babysitter, carrying out all the duties of the position in a competitive environment, is able to sustain substantial gainful activity.

    By the same token, a person retired for disability who is able to carry the duties of a paying position part or full time that would normally pay at least the minimum wage is able to sustain substantial gainful activity even if no pay is received for the work and the individual is able to set her own hours.

    WHAT IS NOT CONSIDERED GAINFUL EMPLOYMENT?

    A disabled individual retained at a company and asked to perform work that does not serve any real purpose other than make-work and is not productive, is not considered to be substantial, even though the person receives minimum wage for the work. This person may qualify for the elderly tax credit based on disability.

    The intent of the elderly tax credit, also known as the credit for elderly or disabled, is to reduce the amount of tax owed by those over the age of 65 and working, or those under the age of 65 and totally disabled.

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    Disclaimer

    This article is not intended to replace the advice of a tax professional. This is intended for informational purposes only.