Disaster Tax Relief Bill Lets Families Use Pre-Disaster Income for 2025 Child and Earned Income Tax Credits

The Working Families Disaster Tax Relief Act is a straightforward piece of legislation designed to give people a financial lifeline after a major disaster hits. Starting with tax years after December 31, 2024, if you are deemed a “disaster-affected taxpayer,” you get the option to use your earned income from the year before the disaster when calculating eligibility for two major credits: the Child Tax Credit (CTC) and the Earned Income Tax Credit (EITC).

The Problem This Bill Solves

When a major disaster—like a hurricane, wildfire, or flood—hits, it doesn't just destroy property; it often wipes out income. A contractor whose tools are flooded, a restaurant worker whose workplace is closed for months, or a small business owner who loses inventory suddenly sees their income drop to zero or near-zero. Since the CTC and EITC are based on earned income, a massive drop in earnings can mean these families are no longer eligible for the credits, or they receive a much smaller refund, right when they need the money most for recovery.

How the Election Works

This bill (Sec. 2) fixes that by letting you make an election to use your preceding year’s income. For example, if a disaster happens in 2025 and you file your taxes in 2026, you can choose to use your 2024 earned income instead of your lower 2025 income to qualify for the credits. This is a big deal because both the CTC and EITC are refundable, meaning they can result in a direct payment to the taxpayer, providing crucial cash flow during recovery.

To qualify as a “disaster-affected taxpayer,” your principal home or main workplace must have been in a Qualified Disaster Zone during any part of the disaster incident period. A Qualified Disaster is defined as one where the President has declared a major disaster under the Stafford Act, which is the standard definition the IRS already uses for disaster relief. This means the relief is targeted only to those areas officially recognized as needing federal assistance.

The Catch: It’s an Option, Not a Requirement

It’s important to note this is an election, meaning you get to choose which year’s income is better for you. For most people whose income dropped due to the disaster, using the preceding year’s income will maximize their credits. However, if your income increased significantly between the preceding year and the disaster year (perhaps you got a big raise or started a second job before the event), you might actually qualify for more credit using the current year's income. The bill gives you the flexibility to run the numbers both ways. The only potential downside is that this adds a layer of complexity to tax filing, both for taxpayers and the IRS, who will have to process these elections and verify the preceding year's income.