Protecting Americans From Tax Hikes (PATH) Act

What Is the Protecting Americans From Tax Hikes (PATH) Act?

The Protecting Americans from Tax Hikes (PATH) Act of 2015 was an Obama-era law that expanded or renewed several tax credits for individuals, families, and businesses while implementing measures to prevent fraudulent claims for those credits. The act remains in force.

The act primarily affects people who are eligible to receive certain tax credits:

  • People filing for the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit (ACTC) must have a Social Security number or a valid Individual Taxpayer Identification Number (ITIN). If an ITIN has not been used in a tax filing during the previous three years, it is no longer valid, and a new number must be obtained.
  • In any case, refunds that include these credits are not issued before Feb. 15 of each year. That gives the Internal Revenue Service (IRS) time to check for fraudulent claims.

The PATH Act renewed about 50 temporary tax breaks for individuals and businesses that had passed their original expiration dates.

Key Takeaways

  • The Protecting Americans from Tax Hikes Act of 2015 renewed some 50 tax breaks for individuals and businesses.
  • It also established procedures to forestall attempts to defraud the government by falsely claiming tax credits.
  • The Child Tax Credit and the Earned Income Tax Credit, both created as temporary tax breaks for families, were made permanent under the Path act.
  • The act also retroactively extended the Work Opportunity Tax Credit, a credit for employers who hire individuals from groups that have consistently faced employment barriers.
  • The Child Tax Credit didn't appear in the Inflation Reduction Act, which was signed into law by President Joe Biden in August 2022.

Understanding the PATH Act

The PATH Act focused on several tax credits for individuals, families, and businesses. It extended some credits permanently and expanded eligibility for others.

A tax credit, in general, is more valuable to the taxpayer than a tax deduction. A tax deduction merely reduces the person's taxable income. A tax credit reduces the amount of taxes owed, dollar for dollar.

A tax credit may also be refundable or partially refundable. In that case, a low-income taxpayer might owe little or no taxes and receive a check from the IRS for some or all of the credit.

Special Considerations

Tax credits are particularly vulnerable to fraud by taxpayers seeking to score credits they aren't eligible for and by con artists preying upon eligible taxpayers. This was notably through the Child Tax Credit and the Earned Income Credit.

Child Tax Credit

The Child Tax Credit (CTC) program, which was substantially expanded to relieve American families of some of the financial burden caused by the COVID-19 pandemic, delivered payments of up to $300 per month per child to taxpayers below certain income levels through 2021.

The CTC reverted back to pre-pandemic levels in 2022 and is adjusted slightly for inflation annually.

Eligible taxpayers automatically received those payments because the IRS had the information it needed to identify them. But those whose incomes were so low that they didn't have to file were required to sign up for the credit online.

And that fact opened up an opportunity for con artists masquerading as IRS agents. They approached people by text, email, phone, and social media, posing as government representatives to trick personal information out of the unwitting.

The other target for fraud, of course, was the IRS itself. Tax filers could commit fraud by underreporting their income or inventing dependents to qualify for the credit.

Earned Income Credit

A second opportunity for attempting to defraud the IRS occurred through the Earned Income Tax Credit (EITC). This credit, worth $560 to $6,935 a year, is available to low and moderate-income individuals, with larger amounts credited to families with children.

An attempted fraud can occur when someone files a tax return that falsifies the person's earned income, the number of children in the family, or both.

The IRS warns that people eligible for the Child Tax Credit are being bombarded with calls, texts, email messages, and social media posts from scam artists seeking to steal their money. The agency warns taxpayers not to disclose personal or financial information to anyone purporting to be from the IRS.

Earned Income Tax Credit (EITC) and Additional Child Tax Credit (ACTC)

There was no change in the tax filing process due to the PATH Act. In most cases, the IRS expects to send refund checks within 21 days.

However, if you file an EITC or ACTC return early in the year, the IRS will hold your refund check until Feb. 15. The reason for the delay is to provide the IRS with additional time to identify fraudulent claims and to prevent refunds from being paid to identity thieves.

The EITC applies to low-income and medium-income individuals and families with or without children. Tax credits depend on the number of children. The full ACTC amount applies to all families that make less than $200,000 ($400,000 filing jointly) and decreases as income increases over that level.

If the EITC or ACTC doesn't apply to you, or if you file taxes after Feb. 15, the PATH Act does not affect the timing of your refund.

The EITC has a cap of $560 for childless households in 2022 and $600 in 2023. 

New and Extended Tax Provisions in the PATH Act

The PATH Act renewed many expired tax laws and introduced a few new laws affecting individuals and businesses. Many tax deductions set to expire, such as tuition deductions, certain charitable contributions, and residential energy credits, were extended with retroactive credit.

Below are a few PATH Act changes and extensions for individuals and businesses.

Extension of the Work Opportunity Tax Credit (WOTC)

Employers may be eligible for a Work Opportunity Tax Credit (WOTC) if they hire individuals from specified target groups that have historically faced barriers to employment.

The PATH Act retroactively extended WOTC eligibility to workers hired on or after Jan. 1, 2015. The WOTC includes nine categories of workers and an additional category for long-term unemployment recipients hired on or after Jan. 1, 2016.

Wrongful-Incarceration Exclusion

The PATH Act includes an exclusion that allows a wrongfully-incarcerated individual a one-year window to file refund claims related to restitution or monetary awards (including civil damages) received and reported in a prior tax year.

According to the Wrongful Incarceration FAQs published by the IRS, the PATH Act allows exonerated people to omit any monetary awards related to wrongful incarceration from their reported earned income.

The term "PATH Act Refund" is sometimes applied to this provision.

Renewal of Individual Taxpayer Identification Number (ITIN)

The ITIN is used primarily by taxpayers who cannot obtain a Social Security number (SSN). Most are foreign citizens who earn income in the U.S. or from U.S. sources.

The PATH act required these taxpayers to get a new ITIN number if they have one but have not used it in a tax return in the previous three years.

An ITIN number can be obtained by mailing Form W-7 to the IRS or visiting an IRS office or IRS-authorized agent.

Using an expired ITIN could result in a refund delay or ineligibility for tax credits.

Tax Policy Today

As a topic of debate and discussion, the PATH Act has long been supplanted by newer legislation, some of which deal with the tax credits renewed back in 2015. The fate of the Child Tax Credit is particularly at issue.

The American Rescue Plan, passed in 2020 to relieve taxpayers harmed economically by the COVID-19 pandemic, extended the Child Tax Credit to many more American Families and increased the size of the payments. That provision expired at the end of 2021.

The expanded Child Tax Credit was set to be expanded by the Build Back Better bill, which was proposed by President Joe Biden. The House of Representatives passed the measure, but it stalled in the Senate. The expanded credit, however, didn't appear in the Inflation Reduction Act of 2022 at the federal level, which replaced the BBB bill and was signed into law on Aug. 16, 2022.

What Is the PATH Act?

The Protecting Americans from Tax Hikes (PATH) Act was legislation passed in 2015 that made specific changes to tax laws.

What Does Path Mean on Refund?

A Path Act Refund is a term used to refer to the refund issued to wrongfully incarcerated individuals.

Is the PATH Act a Good Thing?

The PATH Act had several provisions that addressed issues for lower-income taxpayers and created steps to protect taxpayers from fraudulent activity. Other provisions addressed separate tax issues that have generally been accepted as good changes.

Article Sources
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  1. United States Senate Committee on Finance. "Section-by-Section Summary of the Proposed 'Protecting Americans From Tax Hikes Act of 2015'."

  2. Internal Revenue Service. "EITC Awareness Day: Important Changes Mean More People Qualify for Credit That Helps Millions of Americans."

  3. Congress.gov. "H.R.5376 - Inflation Reduction Act of 2022."

  4. Internal Revenue Service. "Credits and Deductions."

  5. National Conference of State Legislatures. "Child Tax Credit Overview."

  6. Internal Revenue Service. "Don’t Fall for Tax Scams About the Child Tax Credit - YouTube Video Text Script."

  7. Internal Revenue Service. "Earned Income and Earned Income Tax Credit (EITC) Tables."

  8. Internal Revenue Service. "IRS Criminal Investigation Warns Taxpayers About Child Tax Credit Scams."

  9. Internal Revenue Service. "Tax Season Refund Frequently Asked Questions."

  10. Internal Revenue Service. "The IRS Must Hold Refunds for Tax Returns Claiming EITC or ACTC Until At Least February 15."

  11. Internal Revenue Service. "What You Need to Know about CTC, ACTC and ODC."

  12. Internal Revenue Service. "26 CFR 601.602: Tax forms and instructions | Rev. Proc 2022-38," Page 10.

  13. Internal Revenue Service. "Work Opportunity Tax Credit."

  14. Internal Revenue Service. "Wrongful Incarceration FAQs."

  15. Internal Revenue Service. "Individual Taxpayer Identification Number."

  16. Internal Revenue Service. "How Do I Apply for an ITIN?"

  17. Congressional Research Service. "The Child Tax Credit in the House-Passed Build Back Better Act: Summary Table."

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