HB 6645, the Working Families Disaster Tax Relief Act, would amend the Internal Revenue Code to permit disaster-affected taxpayers to use the preceding taxable year’s earned income to determine eligibility for the earned income credit and the refundable portion of the child tax credit. The bill defines who qualifies as a disaster-affected taxpayer and what counts as a qualified disaster zone, and it creates an election to apply prior-year income in credit calculations.
The amendments apply to taxable years beginning after December 31, 2024.
At a Glance
What It Does
The bill creates an election that allows disaster-affected taxpayers to substitute the preceding taxable year’s earned income for the current year when calculating eligibility for the Child Tax Credit (Sec. 24(d)) and the Earned Income Credit (Sec. 32). It defines key terms (disaster-affected taxpayer, qualified disaster, qualified disaster area, and qualified disaster zone) and ties the relief to presidential disaster declarations.
Who It Affects
Disaster-affected taxpayers within qualified disaster zones or who are displaced by qualifying disasters, and filers with dependents eligible for the refundable Child Tax Credit and the EITC.
Why It Matters
The mechanism preserves access to refundable credits for taxpayers whose income in the disaster year was disrupted, potentially expanding relief for families in the wake of disasters and reducing timing gaps in credit receipt.
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What This Bill Actually Does
The Working Families Disaster Tax Relief Act changes how certain tax credits are calculated for people affected by disasters. Specifically, it adds an option to use the preceding year’s earned income, rather than the current year’s income, when determining eligibility for two major credits: the Earned Income Tax Credit (EITC) and the refundable portion of the Child Tax Credit (CTC).
The election applies to both credits and is activated for disaster-affected taxpayers as defined by the bill. To qualify, a taxpayer must meet criteria tied to a qualifying disaster and a qualifying disaster zone, which are tied to presidential declarations under the Stafford Act.
The amendments reference and modify existing code sections: Section 24(d) for CTC and Section 32(c) for EITC, adding language that allows substitution of the preceding taxable year for the current year in determining eligibility. The changes take effect for taxable years beginning after December 31, 2024.
The Five Things You Need to Know
The bill adds an election allowing disaster-affected taxpayers to use the preceding year’s earned income to determine CTC eligibility.
A parallel election is added to determine EITC eligibility by substituting the preceding year’s earnings.
Disaster-affected taxpayers are defined to include those in a qualified disaster zone or displaced by the disaster.
A 'qualified disaster' is tied to presidential declarations under the Stafford Act, with a defined 'qualified disaster zone.', The amendments apply to taxable years beginning after December 31, 2024.
Section-by-Section Breakdown
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Election to use prior year income for disaster-affected taxpayers — Child Tax Credit
Section 24(d) is amended to create an election allowing disaster-affected taxpayers to substitute the preceding taxable year for the current year in determining CTC eligibility. The bill also provides definitions for who qualifies as a disaster-affected taxpayer and what constitutes a qualified disaster area and zone, linking eligibility to a presidential disaster declaration under the Stafford Act.
Election to use prior year income for disaster-affected taxpayers — Earned Income Credit
Section 32(c) is amended to add a new paragraph allowing the disaster-affected taxpayer to apply the preceding-year income test when determining EITC eligibility, mirroring the CTC election in Section 24(d). This creates a consistent mechanism across both credits for disaster-impacted filers.
Effective date
The amendments made by Section 2 apply to taxable years beginning after December 31, 2024. This establishes a retroactive-like effective horizon relative to the 2024 disaster year and beyond, ensuring the new method is available for relevant filings.
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Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Disaster-affected families with qualifying children who rely on refundable credits and would benefit from using prior-year income when determining eligibility.
- Low- to middle-income households located in qualified disaster zones that experience income disruption but still qualify for CTC and EITC.
- Displaced workers who temporarily reside outside their normal tax year income calculation window and need relief for credit eligibility.
Who Bears the Cost
- IRS and Treasury resources to implement the new election, update forms and guidance, and monitor compliance.
- Taxpayers and preparers who must gather prior-year income data and adjust to the new calculation method.
- Tax software developers and payroll systems that must update to reflect the changes in credit calculations.
- State and local tax administrations that may align with or coordinate on federal credits and manage any state counterparts.
Key Issues
The Core Tension
The central tension is between expanding relief for disaster-affected taxpayers by allowing prior-year income to determine credit eligibility and the administrative complexity and potential for inconsistent application that comes with relying on disaster declarations and a new election in tax filings.
The bill expands access to two of the federal refundable credits by tying eligibility to a prior year’s income in disaster situations, which should help families sustain credit receipts during income disruptions. However, implementing the election requires administrative adjustments—new forms, guidance, and potentially amendments to software used by tax preparers and individuals.
The approach depends on definitions that hinge on presidential disaster declarations (the Stafford Act framework), which may create variability across disasters and over time. While the intent is relief, the policy adds complexity and could increase opportunities for misreporting if filers mischaracterize the disaster status or misapply the prior-year income in edge cases.
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