Because of the way the credit for the elderly and disabled is structured, your credit will be phased out completely under the following circumstances:

• For singles, your credit will be zero if you have an adjusted gross income (AGI) for the year of $17,500 or more or if you receive $5,000 or more in nontaxable income*.
• If you are married and file a joint return, and either you or your spouse (but not both) qualify for the credit, your credit will be zero if your joint return adjusted gross income is $20,000 or more, or if you or your spouse receive $5,000 or more in nontaxable income*.
• For married persons who are filing jointly, if both you and your spouse qualify for the credit, your credit will be zero if your joint return adjusted gross income is $25,000 or more, or if you or your spouse receive $7,500 or more in nontaxable income*.
• If you are married and file a separate return, you will not be entitled to any credit unless you are living apart from your spouse for the entire tax year. Even if you qualify, your credit will be zero if you have an adjusted gross income of $12,500 or more, or receive $3,750 or more in nontaxable income*.

Generally both spouses must work unless one is incapable of self-care or is a full-time student. If only one spouse is working, and the non-working spouse was a full-time student or disabled, an earned income is assumed for each month of school attendance or full disability. The earned income is $250 per month if there is one qualifying child or dependent, or $500 per month for two or more qualifying children or dependents.

Elderly day care payments may qualify as Child and Dependent Care Expenses. You can take credit if you have met with the following requirement.

• You are a qualified individual.
• Your income is not more than certain limits.

Generally, if you were age 65 or older or disabled and your income and nontaxable social security or other nontaxable pension are below specified amounts, you may be able to deduct the elderly or disabled credit on your tax return.
You  must meet one of the following conditions to deduct the elderly or disabled credit on your tax return:

• your 65th birthday is on or before January 1, 2007; or
• you were under age 65 at the end of 2006, you retired before the end of 2006 because of permanent and total disability and you received taxable disability income in 2006 from your former employer's disability plan. Qualifying disability income does not include payments received after reaching mandatory retirement age.

The elderly or disabled credit is 15% of the base amount after reductions.
The initial base amounts for the elderly or disabled credit are:

• $5,000 if you file your tax return as single, head of household, or qualifying widow(er);
• $5,000 if you file a joint tax return and only one spouse is eligible for the elderly or disabled credit;
• $7,500 if you file a joint tax return and both spouses are eligible for the elderly or disabled credit. Only one $7,500 base may be claimed for both spouses;
• if you are under age 65 and totally and permanently disabled the base amount for calculating the elderly or disabled credit is the lower of your 2006 disability income or the initial base amount for your tax return filing status shown above.

The base amounts for the elderly or disabled credit are reduced by:

• Social Security and Railroad Retirement benefits which are not taxable;
• tax free pension, annuity, and disability income paid under a law administered by the Veterans' Administration or under other federal laws;

One half of adjusted gross income exceeding:

• $7,500 if you file your tax return as single, head of household, or qualifying widow(er);
• $10,000 if you are married and file a joint tax return;
• $5,000 if you are married, live apart from your spouse for the entire tax year, and file a separate tax return.

Consequently, regardless of non taxable Social Security, Railroad Retirement, and the aforementioned tax free pension, annuity, and disability income benefits, the elderly or disabled credit is no longer available to the following:

• single tax return filers when adjusted gross income (AGI) reaches $17,500;
• on a joint tax return where only one spouse is eligible for the elderly or disabled credit, $20,000;
• $25,000 on a joint tax return where both spouses are eligible for the elderly or disabled credit; and
• $12,500 for married persons filing separate tax returns.

The base amounts for the elderly or disabled credit are not reduced by:

• military disability pensions received for active service in the Armed Forces, Coast Guard, Geodetic Survey, or Public Health Service;
• some disability annuities paid under the Foreign Service Act of 1980; and
• Workers' compensation benefits, unless Social Security benefits are reduced by workers' compensation benefits in which case that amount of workers' compensation benefits is treated as Social Security benefits that reduce the base.

Special elderly or disabled credit tax rules apply for nonresident aliens, married taxpayers filing separate tax returns, and disabled persons.