This bill allows taxpayers affected by a major disaster to use their preceding year's earned income when calculating eligibility for the Child Tax Credit and the Earned Income Tax Credit.
Sara Jacobs
Representative
CA-51
The Working Families Disaster Tax Relief Act allows taxpayers affected by a federally declared major disaster to elect to use their preceding year's earned income when calculating eligibility for the Child Tax Credit and the Earned Income Tax Credit. This provision aims to provide financial relief by ensuring that recent job loss or reduced income due to a disaster does not disqualify families from these essential tax credits. The election applies to tax years beginning after December 31, 2024.
Disaster Relief Bill Lets Families Use Last Year's Income for Tax Credits Starting 2025
If you’ve ever had your life upended by a hurricane, wildfire, or flood, you know the financial hit often comes long after the news cameras leave. This bill, the Working Families Disaster Tax Relief Act, is designed to catch families before they fall through the cracks of the tax code when disaster strikes.
The Lifeline: Using Your Best Income
Starting with the 2025 tax year, this legislation gives “disaster-affected taxpayers” a crucial option. If your income drops sharply in the year a major disaster hits—maybe your workplace closed, your business was destroyed, or you were out of work dealing with home repairs—you can elect to use your earned income from the preceding year when calculating two major refundable tax credits: the Child Tax Credit (CTC) and the Earned Income Tax Credit (EITC).
Think of it this way: The CTC and EITC are based on your income, and if your income falls too low, you might lose eligibility or see the credit amount shrink. For a family relying on that refund to catch up after a disaster, losing the credit is a double whammy. This bill (under Section 2) ensures that a temporary income loss due to a disaster doesn't cost you those vital credits.
Who Qualifies for This Tax Break?
This isn't just for anyone who got wet feet. To qualify as a “disaster-affected taxpayer,” your principal home or principal workplace must have been located in a “qualified disaster zone” during the disaster period, or you must have been displaced from your home in a “qualified disaster area.” Both of these areas must be tied to a major disaster declaration by the President under the Stafford Act. This means the relief is highly targeted to those in the hardest-hit, federally recognized areas.
For example, imagine a construction worker whose business was booming in 2024. A major hurricane hits in 2025, halting all work for months, causing his 2025 income to plummet. Without this bill, his lower 2025 income might disqualify him from the EITC. With this election, he can use his higher 2024 income to qualify for the EITC in 2025, giving his family the financial stability they need to rebuild.
The Practical Upshot
This is a smart, targeted piece of policy. It uses the existing infrastructure of the IRS and the tax code to deliver immediate, necessary cash relief to working families when they are most vulnerable. It acknowledges the reality that recovering from a disaster is expensive and often comes with a significant, temporary loss of income. By allowing the use of the prior year's income, it helps maintain the safety net provided by the CTC and EITC when people need it most.
Because the eligibility is tied strictly to a Presidential disaster declaration and physical presence in a designated zone, the provisions are clear and focused. It avoids creating a complex new system for relief and instead tweaks the existing rules to prevent financial hardship for those who are already struggling to get back on their feet.