Thousands of retirees from government and private industry may be eligible for substantial, ($200 to $500) one-time rebates on their income tax.

The tax break is open to individuals age 65 and over who now - thanks to a new tax law - have the option of computing their 1976 taxes in two different ways. They may use either the so-called retirement income credit which was in effect prior to changes made by the 1976 Tax Reform Act, or the new Credit for the Elderly provision.

The latter replaced the retirement income-tax credit last year. When tax time rolled around, many 65-plus retirees found the new credit provision didn't give them as generous an age deduction as did the old one.

Congress, proded by Sen. Frank Church (D-Idaho), had legislative second thoughts and passed the so-called Tax Reduction and Simplifications Bill recently. It allows retirees - who have already paid their 1976 taxes on the basis of the new provisions of credit for the elderly - to file, in many cases, an amended tax return (Form 1040 X). Taxes would be computed the old way - that is, under the Retirement Income Credit provision. The latter, in many cases, would mean refunds of $200 or more for a single retiree over 65, and up to $500 or more for married couples.

The tax situation is so complicated that I'm going to quote directly from the legislative report that the National Association of Retired Federal Employees gave its members. NARFE was instrumental in getting Congress and the President to make several changes in 1976 tax laws. NARFE explains:

". . . This grants retirees over age 65 the option of computing their 1976 tax liabilities under either the Old Retirement Income Credit, which was in effect prior to the 1976 Tax Reform Act, or the new Credit for the Elderly provision which replaced the RIC in last year's tax law. The older retiree can use either method of computing credit for 1976, dependent upon which would be more beneficial for the particular taxpayer.

". . . The need for the amendment (by Sen. Church) arose from the fact that the new Credit for the Elderly provision of the 1976 tax law reduced or eliminated a tax credit which many retirees had utilized in the past by imposing a phase-out of the credit based on the adjusted income of the taxpayer.

"The phase-out provision was applied only to eligible retirees over age 65, thereby raising the tax liability of a person at the very time his tax burden should be lessened.

"Since the former RIC did not reduce the credit because of adjusted gross income," the NARFE report continues, "thousands found that they were hit with a higher tax bill than the past, owing monies they had not planned for in estimated returns, or in other savings for tax purposes. The new Credit for the Elderly had not helped everyone over age 65 as was intended. It had, in fact, hurt many of them and, in the name of fairness and equity, a rectifying amendment was needed."

All this means, I think, is that Congress made a mistake in the tax reform act and that most retirees over age 65 paid more taxes as a result. Now that situation (for the 1976 year only) has been corrected. Check with the Internal Revenue Service to see if filing an amended return would get you a tax refund.