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

The Protecting Americans from Tax Hikes (PATH) Act of 2015 was created to protect taxpayers and their families against fraud and permanently extend many expiring tax laws. The law affects the timing of certain refunds for tax returns filed each year before Feb. 15. Additionally, the PATH Act retroactively extended the Work Opportunity Tax Credit (WOTC), included a new wrongful-incarceration exclusion, and required some taxpayers to renew their Individual Taxpayer Identification Number (ITIN).

Key Takeaways

  • The Protecting Americans from Tax Hikes (PATH) Act of 2015 includes changes to the tax laws that extend many expiring laws and protect taxpayers against fraud.
  • The PATH Act includes provisions affecting some taxpayer credits for individuals and businesses.
  • Under the PATH Act, taxpayers who file early in the year for an Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) may have to wait until after Feb. 15 to receive their refund.
  • The PATH Act retroactively extends the Work Opportunity Tax Credit (WOTC), a credit for employers who hire individuals from target groups that have consistently faced employment barriers.

Understanding the 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.

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

There is 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, 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 Feb. 15. This means you might not receive your refund until late February. The reason for the possible refund delay for early filers 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 families, most often those with children. Tax credits depend on the number of children. The earned income threshold for claiming the ACTC is $2,500.

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.

As a result of the American Rescue Plan of 2021, the EITC originally capped at $543 for childless households, increases for those same households in 2021 to $1,502. 

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 deductions, certain charitable contributions, and residential energy credits, were extended with retroactive credit for 2015.

Below are a few of the many PATH Act changes/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 extends WOTC eligibility for 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 an eligible 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 excludes wrongfully incarcerated individuals from having to include as income any monetary awards received that relate to the wrongful incarceration.

Renewal of Individual Taxpayer Identification Number (ITIN)

The PATH Act includes a requirement for certain taxpayers to renew their Individual Taxpayer Identification Number (ITIN) starting in Oct. 2016. Taxpayers who have not used their ITIN on a federal tax return at least once in the previous three years must renew their ITIN in order to use it. Using an expired ITIN could result in a refund delay or ineligibility for tax credits.