Tax Fairness for Disaster Victims Act
Tax Fairness for Disaster Victims Act would add a new lookback rule to the earned income tax credits for people affected by federally declared disasters. Specifically, if a qualified individual’s earned income or Social Security taxes in the disaster year are lower than in the prior year, the rule allows the taxpayer to substitute the prior year’s earned income and/or Social Security taxes when calculating the earned income credit (section 32) and the refundable portion of the child tax credit (section 24(d)). The election to use this lookback is voluntary, must be made in the manner the Treasury Department provides, and would apply to tax years beginning after enactment. The rule also applies to joint returns if either spouse is a qualified individual, and it is designed to ensure disaster victims receive credit amounts more in line with their typical earning levels when disaster-related income disruption reduces current-year earnings. A related change treats incorrect use of this lookback as a mathematical error for IRS adjustment purposes.
Key Points
- 1Creation of a new lookback rule under section 32(g) for amounts related to earned income in certain federally declared disasters.
- 2The lookback applies to credits under section 32 (Earned Income Tax Credit) and section 24(d) (the refundable portion of the Child Tax Credit).
- 3A “qualified individual” is someone whose main home on the disaster date was in a FEMA-designated disaster area; the “applicable date” is the first day of the disaster period designated by FEMA.
- 4If current-year earned income is lower than the prior year, or current-year Social Security taxes are lower than the prior year, the lookback substitution uses the prior year values for computing credits; joint returns are treated by aggregating spousal earned income and Social Security taxes.
- 5Election to use the lookback must be uniform and applies only to the lookback calculations; other tax determinations remain unchanged by substitution.
- 6The amendment adds that incorrect use of the lookback can be treated as a mathematical or clerical error by the IRS.
- 7Effective date: the changes apply to tax years beginning after enactment.