The IRS PATH Act is an Obama-era law that expanded and renewed tax credits for Americans citizens, families, and businesses. The path act also implemented safeguards to stop fraudulent claims for certain credits.
Because of the PATH Act, if an individual files an EITC or ACTC return in the early month of the qualifying tax year, the IRS will hold your refund check until 15th February.
IRS Path Act
The Protecting Americans from Tax Hikes (PATH) Act of 2015 is an Obama-era law that can expand or renew various types of tax credits for individuals, households, and businesses. It also provides or implements several measures to protect Americans from identity theft and tax fraud.
The PATH Act also affects individuals who are eligible to receive specific 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If they don’t have it currently or if it is no longer valid then they must obtain a new Individual Taxpayer Identification number. Refunds with these credits will not be provided to eligible individuals before 15 February of every year. The PATH Act also renewed more than fifty (50) temporary tax breaks for Americans and businesses that had passed their original expiration dates.
How can the PATH Tax Act Affect you?
Everyone wants to know about how the PATH Tax Act may affect their taxes while filing your tax returns. We make it easy for you by listing the expected effect of the IRS PATH act on individuals below.
- Delays in Refunds of Early Filers: If an individual claims the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) then they may be first in line of those who will get their return with delays. To provide safeguard to individuals refund from Tax fraud crimes, the IRS has implemented a policy of not to release refunds until after 15th February. This step makes it easy for the IRS to stop payment release of any wrong or improper filings with Individuals identity, in this way Path Act protects individuals refund.
- Individuals Taxpayer Identification Number (ITIN) Changes and Renewals: In October 2016, according to the PATH Act Individuals who want to file for Earned Income Tax Credit (EITC) need to have a valid Social Security number or individuals who want to file for Additional Child Tax Credit (ACTC) must have a valid Individual Taxpayer Identification Number (ITIN). ITINs that have not been used for a tax return filing during the past three years will no longer be valid. This means that taxpayers keep their own ITIN up-to-date.
- Penalties for Wrong Credit Claimers: Under the PATH Act, if claimers accidentally file a claim for refundable credit that is higher than the owed taxes, you can be subject to pay accuracy-related penalties. The legal legislation also eliminated an exception from the penalty for invalid refunds and wrong or improper credits that applied to the earned income tax credit in past years.
- Possible Restrictions after improperly claimed credits: The PATH Act expanded certain EITC disallowance rules for the CTC and AOTC. According to the new law individuals can’t claim the Child Tax Credit or American Opportunity Tax Credit for 10 years if the IRS makes it clear that they claimed the credit with false or misleading information. If an individual improperly claims credits because of intentional disregard of IRS rules and regulations (not because of fraud), then they need to wait two years before making a claim for credit again. After the penalty period individuals must file Form 8862 with their tax return to claim a previously disallowed credit.
Guide to latest and extended tax breaks in the IRS PATH Act
The IRS PATH Act made several changes that created, extended, or improved various individual income tax credits, deductions, and exclusions. The main modifications that can save taxpayers money are listed below.
- Additional Child Tax Credit (ACTC): The PATH Act made it easier for lower-income American households to claim the refundable portion of the child tax credit (CTC) by setting the cap at 15% of earned income over $3,000. The income limit has since been reduced to $2,500 from the tax years from 2018 to 2025.
- American Opportunity Tax Credit ( AOTC): According to the PATH Act, this credit was made permanent that can be provided a maximum of $2,500 in partially refundable credits for the first four years of higher education.
- Computers Eligible for 529 Plan Distributions: The PATH Act permitted tax-preferred distributions from a 529 plan to pay for computers, software, and Internet access to students who want to enroll at an eligible educational institution.
- Earned Income Tax Credit (EITC): The PATH Act permanently increased the credit amount for workers who have three or more children from 40% to 45% of earned income. It also lessens the burden of credit’s marriage penalty by making higher phase-out income limits for joint filers permanent.
- Educator Expense Deduction: The PATH Act implemented the educator expense deduction permanently. It also allowed the maximum deduction to be increased yearly for inflation (it is capped at $300 for the tax years of 2023 and 2024).
- Electric Vehicle Recharging Equipment Credit: The tax credit for implementing electric vehicle recharging equipment was extended by the PATH Act in 2016. The Electric Vehicle Recharging Equipment credit was later enhanced or extended through 2032.
- Qualified Charitable Distributions through IRAs – The PATH Act permanently extended the provision that allowed seniors (who are aged 70 1⁄2 or older) to make tax-free distributions of a maximum of $100,000 annually directly from their personal retirement accounts to qualified charities.
How Long Are Your Refunds Delayed Because of the PATH Act?
In the normal cases the IRS delivered refunds checks to all eligible filers within 21 days after filing. But because of the PATH Act, the IRS can delay issuing refunds for tax returns that claim for the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) at least mid-February.
This delaying period provides extra time to the IRS to prevent fraud and ensure the accuracy of these claims. Normally, the IRS starts processing these refunds on or around February 15, and because of it, the majority of taxpayers can expect to get their refunds before the end of February, if they filed a claim online and selected the direct deposit refund receiving method.
Only in a few cases the refunds may take longer if any type of additional verification is needed. Keep in your mind that the path act will not affect individuals’ refund timings, if they are not eligible for EITC and ACTC or if they file taxes after 15 February.
