HR6645-119

What This Bill Does

The Working Families Disaster Tax Relief Act amends the child tax credit refundability rules and the earned income tax credit so disaster-affected taxpayers may elect to use preceding-year earned income rather than current-year earned income. For the child tax credit, a taxpayer can use the prior year in the refundable-credit calculation. For the EITC, a disaster-affected taxpayer can apply the earned-income calculation using preceding taxable year income. A disaster-affected taxpayer includes someone whose principal home or workplace during the incident period is in a qualified disaster zone, or someone whose home is in the qualified disaster area and who is displaced during the taxable year because of the disaster. Qualified disasters are presidential major disaster declarations under the Stafford Act, with qualified disaster areas and zones tied to the declaration and individual or public assistance determinations. The amendments apply to tax years beginning after December 31, 2024.

Who Benefits and How

Working families in disaster zones benefit because a temporary earnings drop after a disaster does not automatically reduce refundable child tax credit or EITC eligibility. Displaced families benefit because they can use prior-year income if the disaster forced them from their principal home. Low-income workers benefit from more stable refundable credits during recovery. Tax preparers and disaster-assistance organizations benefit from clearer statutory definitions for qualified disaster areas and zones.

Who Bears the Burden and How

IRS staff must administer the election, verify disaster-zone eligibility, update forms and guidance, and police improper claims. Taxpayers must determine whether their home or workplace qualifies, elect prior-year income, and retain records about disaster displacement or work location. Treasury may face revenue costs from larger refundable credits. Tax preparers must apply Stafford Act disaster definitions and effective dates accurately.

Key Provisions

• Provides a prior-year earned-income election for refundable child tax credit calculations after qualified disasters.
• Extends the prior-year earned-income election to earned income tax credit calculations for disaster-affected taxpayers.
• Requires eligibility to be tied to presidentially declared disaster areas, qualified disaster zones, workplaces, homes, and displacement rules.
• Applies the changes to tax years beginning after December 31, 2024.