What is the 'PATH Act'

The Protecting Americans from Tax Hikes (PATH) Act was created in order to protect taxpayers and their families against fraud and permanently extend many expiring tax laws. The law, which was enacted in December of 2015, affects the timing of certain refunds filed before February 15, 2017.

BREAKING DOWN 'PATH Act'

The PATH Act was introduced to ensure that all Americans are provided with the correct refund from the Internal Revenue Service (IRS) by extending expired tax laws and introducing new laws to reduce fraud. In many cases, the PATH Act doesn't change the amount of refund a person or family receives, or the timing of that refund; however, certain tax credits are now more closely monitored.

Filing Taxes

There is no change in the tax filing process due to the PATH Act, and in most cases, the IRS expects to send refund checks within 21 days, as it did in prior years. However, if you file an Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) return early in the year, the IRS will hold your refund check until February 15, 2017. This means that you might not end up receiving your refund until late February.

The EITC applies to low-income and medium-income families, most often those with children. Tax credits depend on the number of children. The ACTC applies to those earning at least $3,000 per year whose Child Tax Credit is greater than the total amount of owed income taxes.

If the EITC or ACTC doesn't apply to you, or if you file taxes after February 15, the new tax law does not affect the timing of your refund.

New and Extended Tax Provisions

The PATH Act renewed many expired tax laws and introduced a few new laws, which affect both individuals and businesses. Many tax deductions that were set to expire, such as tuition deduction up to $4,000, certain charitable contributions and residential energy credits, were extended, with retroactive credit for 2015. Here are a few of the many PATH Act changes/extensions for individuals:

  • The existing Child Tax Credit laws were renewed to permanently maintain the $3,000 earned income threshold that qualifies a person for a refundable credit. This threshold was set to rise to as high as $10,000 in 2017, which would have disqualified many taxpayers from claiming the credit.
  • The maximum credit under the American Opportunity Tax Credit, which applies to higher education expenses, is permanently set at $2,500. This was expected to drop to $1,800 in 2017.
  • IRS fraud regulations have become more stringent. For example, if a person fraudulently claims EITC, the person will be banned from claiming that credit for ten years. If a person fraudulently claims a Child Tax Credit or an American Opportunity Education Credit, that person will be banned from claiming those credits for two years. Also, a person cannot go back and claim a Child Tax Credit for previous years when the child in question didn't have a SSN or an ITIN.
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