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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.
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Example
Assume that you are age 66 and single, have an adjusted gross income (AGI) of $8,500 for 2007, 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.
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