If you qualify and have income below the limits described above, your starting point for computing the credit is an amount that is determined by your filing status: $5,000 if you are single or married filing jointly with one spouse qualifying for the credit, $7,500 if you are filing jointly and both spouses qualify for the credit, or $3,750 if you are married filing separately.

Then, reduce this amount dollar-for-dollar for pension, annuity, or disability benefits that are excluded from your gross income and also for nontaxable Social Security, railroad retirement, or veteran's benefits payable under a VA program. If you file a joint return, you must combine all benefits paid to both you and your spouse.

Your initial credit amount is further reduced by one-half the amount by which your AGI exceeds one of the following amounts: $7,500 for singles, $10,000 if married filing jointly, or $5,000 if married filing separately.

Finally, multiply the amount that remains after all these subtractions by 15 percent to arrive at your credit amount.

Example Assume that you are age 66 and single, have an adjusted gross income (AGI) of $8,500 for 2006, and receive $4,000 of nontaxable Social Security benefits for the year. You would determine your credit for the elderly as follows: Initial amount of credit ($5,000) minus Social Security benefits ($4,000) equals your reduced initial amount ($1,000). From this $1,000 you would subtract one-half of your AGI above $7,500 ($500) to arrive at $500. Your credit would be $500 x 15% = $75.