The party has also signalled it will seek to increase the amount people can earn before paying National Insurance once that threshold is reached.
If the LibDems are elected it would be a party commitment that the allowance would be increased by the end of the next Parliament, said Chief Secretary to the Treasury Danny Alexander.
The move would cut income tax for 30 million workers and be worth £400 per year to a typical basic rate taxpayer, the party said.
It would also see more than six million pensioners benefiting, Mr Alexander said. He added that the tax system had to be fair and help being in work pay.
He went on: "That is why cutting income tax for working people, particularly those on low and middle incomes, is a top Liberal Democrat priority.
"It was on the front page of the 2010 Liberal Democrat manifesto and we have fought to keep it on the agenda at every Budget.
"By April next year we will have delivered a tax cut to more than 26 million people worth £800 a year to a typical basic rate taxpayer and taken more than three million out of tax altogether.
"Now we want to go even further and lift the amount of money people can earn before paying income tax to £12,500.
"The Liberal Democrats are the only party in British politics with a long-term commitment to cutting taxes for the working people of Britain."