Key Takeaways
- PATH Act combats tax refund fraud and identity theft.
- Delays EITC and ACTC refunds until mid-February.
- Makes key tax credits permanently available.
- Stricter ID rules reduce fraudulent claims.
What is PATH Act?
The Protecting Americans from Tax Hikes (PATH) Act of 2015 is a federal law aimed at reducing tax-related fraud and identity theft while permanently extending several tax relief provisions for individuals and businesses. It combats fraudulent refund claims, especially those involving refundable credits like the Earned Income Tax Credit.
This bipartisan legislation provides tax stability by making many temporary tax breaks permanent and enhances IRS procedures to prevent abuse.
Key Characteristics
The PATH Act combines anti-fraud measures with permanent tax incentives, offering both taxpayer protection and planning certainty:
- Refund Delay: Refunds claiming the Earned Income Tax Credit or Additional Child Tax Credit are held until mid-February to allow fraud checks.
- Strict ID Requirements: Social Security Numbers or ITINs must be valid and timely to claim credits, reducing identity theft.
- Permanent Tax Relief: Key provisions like the Child Tax Credit and American Opportunity Tax Credit are made permanent for reliable tax planning.
- Enhanced Penalties: Increased IRS penalties deter improper claims on refundable credits.
- Small Business Benefits: Includes permanent credits for research and development and expanded Section 179 expensing.
- Sales Tax Deduction: Allows itemizing sales tax instead of income tax, linked to sales tax rules.
How It Works
The PATH Act requires the IRS to delay refunds involving refundable credits until February 15 of the filing year, enabling time to verify the validity of claims and reduce fraudulent returns. This safeguard specifically targets abuse of the Earned Income Tax Credit and Additional Child Tax Credit.
It also mandates that all Social Security Numbers and Individual Taxpayer Identification Numbers used must have been issued before the original tax return deadline, preventing retroactive claims. By making numerous tax relief provisions permanent, it provides stability for taxpayers, including provisions benefiting small businesses and families.
Examples and Use Cases
The PATH Act impacts a wide range of taxpayers and industries by securing refunds and extending key credits:
- Airlines: Companies like Delta benefit indirectly as the Act supports economic stability through business tax credits, including research and development incentives.
- Families: A family claiming the Child Tax Credit enjoys permanent access to refundable portions without the threat of sudden legislative changes.
- Students: The American Opportunity Tax Credit helps college students offset tuition costs, with credits now permanently available thanks to the PATH Act.
- Small Businesses: Businesses can confidently claim enhanced Section 179 expensing and research and development credits to reduce tax liabilities and invest in growth.
Important Considerations
When filing, ensure all required identification numbers are valid and timely to avoid delays or denial of credits. Taxpayers should also be aware of the refund hold period when planning cash flow.
Understanding the PATH Act’s provisions helps you leverage permanent tax benefits while complying with stricter anti-fraud rules. For those seeking to optimize credit card rewards in line with tax planning, reviewing the best credit cards for excellent credit can complement your financial strategy effectively.
Final Words
The PATH Act strengthens tax refund security by delaying certain credits and enforcing stricter ID rules, reducing fraud risks. Review your eligibility and ensure all taxpayer identification numbers are current to avoid processing delays this tax season.
Frequently Asked Questions
The PATH Act, or Protecting Americans from Tax Hikes Act of 2015, is a federal law designed to prevent tax-related fraud and identity theft. It also makes permanent various tax relief provisions to provide stability for individuals, families, and businesses.
The PATH Act requires the IRS to delay refunds claiming the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) until mid-February to verify claims. It also enforces stricter ID requirements and penalties to reduce fraudulent claims.
Taxpayers must provide valid Social Security Numbers, ITINs, or ATINs for themselves, spouses, and qualifying children by the original tax return deadline. ITINs not used on a federal return for three consecutive years become invalid to prevent misuse.
The PATH Act permanently extended several tax credits including the American Opportunity Tax Credit, the Child Tax Credit (and its refundable portion, ACTC), and the Research & Development Tax Credit, providing more certainty for taxpayers and businesses.
Due to fraud prevention measures, refunds claiming EITC or ACTC cannot be issued before February 15 of the filing year, allowing the IRS time to confirm the legitimacy of these claims.
No, the PATH Act requires that all Social Security Numbers or ITINs for claimants and qualifying children must be valid and issued by the original return due date, including extensions. Late additions without valid IDs are not allowed.
Yes, the PATH Act enhances IRS penalties for improper claims related to the Earned Income Tax Credit, Child Tax Credit, and American Opportunity Tax Credit to reduce fraud and abuse.
