Our previous newsletter was about Child Tax Credit, so now we’d like to go to the other end of the age spectrum: the elderly.

This nonrefundable credit is designed to benefit low-income, older individuals, or individuals whose ability to earn income is severely affected by a permanent disability.

Eligibility for this tax credit, which directly reduces the amount of income tax you owe, depends on a variety of factors such as age, filing status and income.

The most that can be claimed as part of this tax credit is $1,125. However, the final amount depends on your income.

You qualify for the Elderly Tax Credit if all of the following apply:

• You are a U.S. citizen or resident alien (or be treated as a resident alien). Generally, you cannot take the credit if you were a nonresident alien at any time during the tax year;
  

• To determine if you can claim the credit, you must consider two income limits. The first limit is the amount of your adjusted gross income (AGI). The second limit is the amount of nontaxable social security and other nontaxable pensions, annuities, or disability income you received. Here are the most common limits:

Since the credit is for elderly or disabled taxpayers, you may also qualify if you are under age 65 at the end of 2011 and all three of the following statements are true:

• You retired on permanent and total disability;
  

• On January 1, 2011, you had not reached mandatory retirement age.
  

You are permanently and totally disabled if you cannot engage in any substantial gainful activity because of your physical or mental condition. A qualified physician must certify that the condition has lasted or can be expected to last continuously for 12 months or more, or that the condition can be expected to result in death.

Even if you do not retire formally, you may be considered retired on disability when you have stopped working because of your disability.

The IRS states that taxpayers must use Schedule R (Form 1040 or 1040A) to calculate the amount of credit and provides detailed instructions for making the required calculations.

You also must file your taxes using Form 1040 or Form 1040A to apply for the Credit for the Elderly or Disabled. In other words, you cannot use Form 1040 EZ, a common form used by individuals with simple tax returns.

Schedule R, the form used to determine eligibility and calculate the credit,, is rather long and complicated and can be quite a waste of time if you can't actually claim the credit. This is also the reason why some tax preparers don’t even consider this tax credit, so make sure you insist they check your eligibility as well.