For legal and tax purposes, there is a specific definition of "totally disabled" that must be met to take advantage of certain tax credits. In general, the standard requires you to be unable to participate in gainful employment, as certified by a physician. Understanding what constitutes gainful employment can clarify whether you qualify for the disability tax credits.
A frequently disputed aspect of the "totally disabled" designation is whether you can engage in substantial, gainful employment. Just because you are not able to perform your previous job does not mean that you are totally disabled. To meet this qualification, you must be unable to perform any work in a manner that constitutes gainful employment. For example, if you used to do a job that required physical activities, and you can no longer perform that job, you might not be considered totally disabled if you can perform a desk job. Even if you are unemployed, you might still be able to work.
If you believe that you are unable to perform any sort of gainful, substantial work, you must get a letter from your doctor attesting to the nature of your disability. The disability can be either mental or physical, as long as it sufficiently impairs your ability to work. With a letter from your doctor, you can apply for Supplemental Security Income benefits, or SSI. The SSI approval process can be lengthy, so be prepared for a long wait and requests for further documentation.
Once you have filed for SSI disability benefits and have the appropriate physician's note, you can take the disability credit on your taxes. You do not have to wait until you are approved or are receiving payments to do so. Consider seeking the assistance of a qualified tax professional to ensure that you take advantage of the tax credits available to you.
Letting the IRS Determine Your Credit
If you prefer to have the IRS figure the credit amount for you, that can be done easily by attaching a Schedule R form to your tax return. Schedule R includes a few basic questions about your household -- whether you are married, whether your spouse is also retired or disabled -- and verifies that your physician has retained a total-disability letter on file. The IRS then determines your credit, which is generally limited to the amount of tax you owe. The IRS notifies you if you owe more than the tax credit covers or sends you a refund if the disability tax credits result in a tax payment overage.