Proposed Bill Offers One-Time 10% Income Tax Credit for 2025, Capped at $100k Income

This legislation, specifically Section 2 of the 'Tax Relief from Tariffs and High Costs Act,' proposes a new, temporary tax credit for individuals filing their federal income taxes for the year 2025. The proposal, outlined in a new Section 36C of the Internal Revenue Code, would grant eligible taxpayers a refundable credit equal to 10% of their federal income tax liability for that specific year. However, this potential tax break comes with a significant condition: it's only available to individuals whose modified adjusted gross income (MAGI) does not exceed $100,000.

The 10% Break Explained

So, what does this actually mean for your tax return? If enacted, this provision allows eligible taxpayers to calculate 10% of their federal income tax owed for 2025 and claim that amount as a credit. The term 'refundable' is key here – it means that even if the credit amount is more than the tax you owe, you could receive the difference back as part of your refund. For instance, if your tax liability is $5,000, the credit would be $500. If you only owed $300 in taxes, you'd potentially get the remaining $200 back. The bill defines 'Federal income tax liability' clearly by referencing specific parts of the existing tax code (Section 26(a)(1) and (2)), ensuring it aligns with standard tax calculations, minus certain other credits. The critical factor for eligibility, however, remains that $100,000 MAGI threshold.

Who Sees the Relief?

This credit is targeted squarely at individuals and families below the $100,000 MAGI mark. For someone earning, say, $70,000 with a tax liability of $8,000, this credit could mean an extra $800 in their pocket for the 2025 tax year, either reducing their tax bill or boosting their refund. Conversely, anyone with a MAGI above $100,000 would not be eligible for this specific credit, regardless of their tax liability. It's designed as a one-off boost for lower and middle-income earners for that particular tax filing season.

Just a One-Year Thing

It's important to remember this isn't a permanent change to the tax code. Section 2 explicitly states these amendments apply only to taxable years beginning after December 31, 2024 – meaning just the 2025 tax year. While it offers potential short-term relief for eligible individuals, it doesn't represent a long-term shift in tax policy. The bill also includes necessary technical adjustments (amending Section 6211(b)(4)(A) and 31 U.S.C. 1324(b)(2)) to ensure this new credit integrates correctly with existing tax processing and payment systems for that single year.