Sponsors (8)
Last progress June 12, 2025 (8 months ago)
Introduced on June 12, 2025 by Timothy M. Kennedy
Referred to the House Committee on Ways and Means.
Creates a temporary tax “lookback” for people who live in certain federally declared disaster areas so they may use the prior year’s earned income (or Social Security taxes) if that year’s income was higher than their income in the disaster year. The rule defines who qualifies, explains treatment for joint returns, treats mistakes under the rule as math/clerical errors, and applies to tax years beginning after enactment.
Adds a new subsection (g) to section 32 of the Internal Revenue Code creating a lookback rule that a qualified individual may elect to apply when computing certain tax credits. The election is to be made at such time and in such manner as the Secretary may provide.
If a qualified individual’s earned income in the taxable year that includes the applicable date is less than their earned income in the preceding taxable year, credits allowed under section 32 and under section 24(d) must be determined by substituting the preceding year's earned income for the disaster-year earned income.
If a qualified individual’s social security taxes in the taxable year that includes the applicable date are less than their social security taxes in the preceding taxable year, the credit under section 24(d) must be determined by substituting the preceding year's social security taxes for the disaster-year social security taxes.
Defines “qualified individual” as any individual whose principal place of abode on the applicable date was located in a disaster area with respect to a federally declared disaster.
Defines “applicable date” as the first day of the period specified by the Federal Emergency Management Agency (FEMA) as the period during which the federally declared disaster occurred.
Primary effects fall on individual taxpayers who live in qualifying federally declared disaster areas and who experienced a drop in earned income in the disaster year. Those taxpayers can elect to use prior-year earned income (or prior-year Social Security taxes) for calculations that reference earned income, which can preserve eligibility for credits or increase refundable credit amounts and otherwise reduce adverse tax outcomes caused by disaster-driven income loss. Tax preparers and the IRS will need to add and process the new election, validate qualifying disaster status, and handle adjustments; treating incorrect elections as math/clerical errors simplifies corrections. The fiscal impact on federal revenues is likely modest (depends on number of electing taxpayers and credit interactions). State tax systems that conform to the federal definition of earned income may be indirectly affected where conformity is automatic; otherwise state law remains unchanged. No new direct mandates on state or local governments are imposed.