 Hello and welcome to this session in which we will discuss the credit for elderly and disabled. As the name of the credit suggests, it's designed to help elderly and disabled people with their income tax bill. The purpose behind introducing the credit for elderly and disabled individual was to offer some tax incentive to those with low income who fall under these categories. To qualify for this credit the person should be either 65 years or older or retired on the grounds of a permanent or complete disability as well as receiving they have to be receiving taxable disability income. So simply put you're either old over 65 that's what's considered old for the IRS or you are disabled and receiving taxable disability income. Now bear in mind there are specific limits on adjusted gross income and non-taxable social security income. As always there is always limitation. Before we proceed any further I have a public announcement about my company farhatlectures.com. Farhat accounting lectures is a supplemental educational tool that's going to help you with your CPA exam preparation as well as your accounting courses. My CPA material is aligned with your CPA review course such as Becker, Roger, Wiley, Gleam, Miles. My accounting courses are aligned with your accounting courses broken down by chapter and topics. My resources consist of lectures, multiple choice questions, true false questions as well as exercises. Go ahead start your free trial today. Let's take a look at the limitation. The highest permissible credit is 15% of the taxpayer base amount. What's the base amount? It's going to vary with your filing status. Here are the base amount that's are provided by the IRS, $5,000 for a single individual or if you are married and one person is eligible it means one person over 65 or one person is permanently disabled and receiving disability income. This amount is 7,500 of both individual both spouses are eligible and married individual filing separately the base amount is 3,750. So you're saying I will take the base amount times 15% yes but we gotta wait a little bit more we have to deduct certain things from the base amount. So before computing the credit we have to reduce the base amount by two factors. The first factor is the amount of non-taxable social security payment or any non-taxable payment. Simply put what's going to happen is you will say okay I'm single I have five by base is 5,000 then I have to deduct from that 5,000 any amount I receive in social security that's non-taxable because social security sometime part of it is taxable part of it is non-taxable I have to deduct the part that's non-taxable then I also have to deduct from this amount 50% of my adjusted gross income that exceeds a certain number for example for single I'll have to reduce my I have to reduce the 5,000 by 50% of the amount that exceed 7,500 of my AGI don't worry it's very simple computation we're going to do it on the next slide there's a different number for if you are married filing jointly and there's a different number obviously for a return for a married filing separately so 10,000 for married filing jointly and 5,000 for married filing separately let's take a look on the next slide to see an example to illustrate this simple computation let's take a look at this example Bob and Karen file a joint return Bob is 67 they're a qualify Karen is 62 that's not qualify and we're not told that she's disabled so only Bob meets the eligibility criteria they have an adjusted gross income of 12,500 and received 750 of non-taxable social security benefit so what's the base amount for them they're married filing jointly but one individual qualify it means the base amount is 5,000 then we have to deduct from this amount the non-taxable social security minus 750 then we have to deduct from this amount half of the access of 10,000 well 12,500 the access above 10,000 is 2,500 times 50 percent that's 1,250 therefore we have to deduct an additional 1,250 the half of the access of 10,000 where does the 10,000 coming from well just in case you're wondering if you go back to the previous slide you would see that for married individual the 10,000 is deducted any amount in access of the 10,000 what's left is 3,000 so notice the base is started at 5,000 it end up to be 3,000 now we'll take the 3,000 times the rate of 15 percent they will get a tax credit of 450 now in reality let me tell you something about this credit sell them elderly individual qualify for this why because elderly individual if they don't make a lot of money and most of their social security is non-taxable so what's going to happen the non-taxable portion usually wipe out the base and they are left with no tax credit this is in reality fyi we have to know what this is how you compute this this credit what should you do now as an accounting student enrolled agent CPA candidate go to far hat lectures look at additional lectures mcqs through false resources that's going to help you with your accounting career with your accounting profession with your college career good luck study hard and of course stay safe