Tax Fairness Act Allows Disaster Victims to Use Last Year's Income for EITC and Child Tax Credits

When a major disaster hits, life stops, but the bills don't. And often, neither does the tax deadline. The Tax Fairness for Disaster Victims Act is a smart, targeted piece of legislation designed to stop people from being penalized by the tax code when their income temporarily tanks due to a federally declared disaster.

The Lifeline: Why Your Income from Last Year Matters Now

This bill introduces a special “lookback rule” for folks whose homes are in a federally declared disaster area. Here’s the deal: If the disaster caused your earned income to drop significantly this year—say, your small business was shut down for months, or your workplace was destroyed—you can elect to use your higher earned income from the previous tax year when calculating two crucial tax breaks: the Earned Income Tax Credit (EITC) and the refundable portion of the Child Tax Credit (CTC) (Section 24(d)). These credits are often the largest refund many low-to-moderate-income families receive, and they are directly tied to how much you earn. If a disaster wipes out your income, it can wipe out your credits, too.

For example, imagine a construction worker whose income usually qualifies them for a substantial EITC. A hurricane hits, and they can’t work for three months. Their annual income drops below the threshold needed to maximize the credit. Under this new rule, they can look back to their pre-disaster income from the year before, ensuring they get the full credit amount needed to rebuild their life, not the minimal amount based on their temporary, disaster-reduced income. The same substitution applies to Social Security taxes paid, which affects the CTC calculation, ensuring maximum benefit there as well.

Who Qualifies and How It Works

To qualify as a “qualified individual,” your main home simply needs to have been in the disaster area on the “applicable date”—the first day the disaster was officially recognized by FEMA. This provision is elective, meaning you choose whether to use it. If you file jointly, only one spouse needs to meet the qualified individual criteria for the rule to apply to the whole return. Importantly, while you are swapping out the income figures for the purpose of calculating these credits, the bill is very clear that this substitution doesn't change how your gross income is calculated for any other part of your tax return.

This is a procedural fix that cuts straight to the real-world problem. It acknowledges that a temporary loss of income during a crisis shouldn't lead to a permanent loss of essential tax relief. Furthermore, the bill streamlines the process for the IRS, allowing them to treat any incorrect use of this lookback rule as a simple clerical error. This means faster resolution of potential mistakes, which is exactly what people need when they’re trying to recover from a disaster.