Video: Credit for the Elderly/Permanently Disabled

In this lesson, Nick Palazzolo, CPA, breaks down the intricate details of the credit for the elderly or permanently disabled, providing insight into its purpose to offer financial relief to qualifying individuals. This tax credit is particularly applicable to those aged 65 and older or those with permanent disabilities. Nick methodically explains how to calculate this credit, emphasizing the 15% limit on eligible income and walking through each step required to determine the applicable credit amount. The lesson includes a practical example that illustrates how to calculate the credit, starting from identifying the correct base amount related to filing status, all the way to adjusting for social security payments and excess adjusted gross income (AGI). Finally, Nick concludes by contrasting the relative importance of this credit with others, such as the child tax credit, ensuring a well-rounded understanding of its place in the tax code.

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Video Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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Next up here we've got the credit for the elderly or the permanently disabled. The credit for the elderly or the permanently disabled, this is going to be a credit designed to provide financial relief for those who are 65 years or older or those who are permanently disabled. Now this credit is limited to 15 percent of the eligible income, we'll see an example on the next slide as well. We've got a requirement for age or disability, you've got to be 65 or older or permanently disabled. Now the base amount, this varies depending on filing status for any income adjustments. Subtract any social security payments in half of the amount by which the AGI exceeds the base amount. We'll again see an example of how this all works. And lastly, multiply the adjusted base amount by 15 percent to determine the credit amount. All right, let's actually try it out and see how it goes. Here we go, so suppose you're a 66 year old single person and you have an AGI of $9,000, you receive $2,000 in social security payments. Assume the following for the current year, these are the assumptions, these are the base amounts, the income adjustments, which can change year to year, but this is what we've got for the current year. Here's how the credit for the elderly calculation would work. In order to figure it out, we got step one, determine the base amount for your filing status. Well, we're single and you see right here it's provided it's $5,000. Now what is the excess AGI? We see that we have $9,000 here and the income adjustment portion, we're going to subtract any social security payments in half of the amount by which the AGI exceeds $7,500. So we see right

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