34.9 Reduction of the Base Amount and Liability Limitation for the Credit

The $3,750, $5,000, or $7,500 credit base amount (34.8) is reduced by nontaxable pensions and Social Security, and also by “excess” adjusted gross income, figured as follows:

Nontaxable Social Security and pensions.

The base amount is reduced by:

  • Social Security and Railroad Retirement benefits that are not taxable (34.3); and
  • Tax-free pension, annuity, or disability income paid under a law administered by the Veterans Administration (but not military disability pensions) or under other federal laws.

The base amount is not reduced by military disability pensions received for active service in the armed forces of any country, disability pensions for active service in the National Oceanic and Atmospheric Administration or Public Health Service, certain disability annuities paid under the Foreign Service Act of 1980, and workers’ compensation benefits. However, if Social Security benefits are reduced by workers’ compensation benefits, the amount of workers’ compensation benefits is treated as Social Security benefits that reduce the base.

Excess adjusted gross income.

You reduce the base amount by one-half of adjusted gross income (AGI) exceeding: $7,500 if you are single, head of household, or a qualified widow(er); $10,000 if you are married filing a joint return; or $5,000 if you are married, live apart from your spouse for the entire year, and file a separate return. Applying these income floors, the credit ...

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