Key takeaways
- Refunds for early filers claiming the Additional Child Tax Credit (ACTC) or Earned Income Tax Credit (EITC) are held until at least Feb. 15 to allow the IRS time to match information from the filer’s tax returns with information on W-2 forms from employers.
- You can be barred from claiming the ACTC, EITC, or American Opportunity tax credit for up to 10 years for erroneously claiming the credit.
- The PATH Act included changes to the ACTC and EITC that make them more beneficial for taxpayers.
- Thanks to the PATH Act, 529 plan funds can be used to purchase computers, software, and Internet access for eligible students.
If lawmakers expand the Child Tax Credit, the IRS has stated that they will automatically adjust your return and notify you of the update, including any additional refund. No extra steps are required on your part.
The Protecting Americans from Tax Hikes (PATH) Act of 2015 included a wide variety of tax law changes that continue to impact millions of Americans to this day. It helped protect the tax system from abuse, while also providing stability in tax planning and compliance.
For many people, the PATH Act is primarily known for current IRS requirements that curb tax fraud and improper tax refunds, particularly with regard to the additional child tax credit, American Opportunity tax credit, and earned income tax credit. However, the legislation also created, extended, and/or improved several tax breaks that are still available today.
Anti-fraud measures in the PATH Act
The PATH Act included a series of anti-fraud measures targeting certain refundable tax credits prone to erroneous claims. These measures include delaying tax refunds, imposing stricter IRS penalties for improper claims, and tightening the requirements for taxpayer identification numbers.
Tax refunds delayed by the PATH Act
To address the more frequent errors, identity theft, and other methods of fraud associated with the additional child tax credit and earned income tax credit, the PATH Act gives the IRS more time to double-check early tax returns claiming these credits before issuing a tax refund.
The law requires the IRS to hold refunds for filers who claim the additional child tax credit or earned income tax credit until at least Feb. 15. So, if you file your return before that date and claim one (or both) of the targeted credits, you may have to wait a little longer to receive your refund. And the entire tax refund is delayed, not just the part related to the additional child tax credit or earned income tax credit.
TurboTax Tip: You’ll get your tax refund faster by filing electronically and selecting the direct deposit payment method. You can also track the status of your refund using the IRS’s “Where’s My Refund” tool.
Also note that refunds can be pushed back even later than Feb. 15. For example, the IRS set Feb. 27 as the target date for issuing most delayed tax refunds in 2024. But that date only applied if the taxpayer chose direct deposit and there were no other issues with the return. So, if a paper refund check is sent or there are errors on your return, your refund could arrive even later.
If you file your return after Feb. 15, the IRS will process your refund as normal without any added delay.
Restrictions following improperly claimed credits
The PATH Act expanded certain earned income credit disallowance rules to the child tax credit and American Opportunity tax credit. As a result, after the new law was enacted, you can’t claim the child tax credit or American Opportunity credit for 10 years if the IRS determines that you fraudulently claimed the credit.
If you incorrectly claimed one of the credits due to reckless or intentional disregard of IRS rules and regulations (but not due to fraud), you have to wait two years before you can claim the credit again.
The PATH Act also allows the IRS to disallow improper credits without a formal audit if you claim the earned income tax credit, child tax credit, or American Opportunity tax credit during the two- or 10-year period. Plus, once the penalty period is over, you’ll have to file Form 8862 with your tax return to claim a previously disallowed credit.
Penalties for improperly claiming credits
Under the PATH Act, if you erroneously claim a refundable credit that’s greater than the tax you owe, you can be hit with certain accuracy-related penalties.
The legislation also eliminated an exception from the penalty for erroneous refunds and credits that previously applied to the earned income tax credit.
Reporting taxpayer identification numbers
You can’t claim the earned income tax credit unless you include a Social Security number on your return for yourself, your spouse (if you’re married), and any qualifying children.
Similarly, to claim the Child Tax Credit, you must provide a Social Security number, Individual Taxpayer Identification Number (ITIN), or adoption taxpayer identification number (ATIN) for yourself, your spouse (if you’re married), and each qualifying child. (Note that each qualifying child must have a Social Security number for the 2018 to 2025 tax years.)
The American Opportunity tax credit contains comparable rules. To claim the credit, you must report your Social Security number or ITIN, as well as a Social Security number, ITIN, or ATIN for each qualifying student.
Since these credits are often used to obtain fraudulent tax refunds, the PATH Act added an extra layer to the identification number reporting requirements. Essentially, after the PATH Act, the applicable identification number must be issued by the due date (including any extensions) for filing your tax return. So, for example, you can’t claim the earned income credit, child tax credit, or American Opportunity tax credit on an amended return or late return if a required Social Security number, ITIN, or ATIN wasn’t obtained by the original deadline for that tax year’s return.
New, extended, or improved tax breaks in the PATH Act
In addition to the anti-fraud provisions described above, the PATH Act made other changes that created, extended, or enhanced several individual income tax credits, deductions, and exclusions. Key modifications that are still saving taxpayers money include:
Additional Child Tax Credit – The PATH Act made it easier for lower-income families to claim the refundable portion of the child tax credit by setting the cap at 15% of earned income over $3,000 (the threshold was previously scheduled to rise to $10,000 before the act). [Note: The threshold has since been reduced to $2,500 for the 2018 to 2025 tax years.]
American Opportunity Tax Credit – The credit, which provides up to $2,500 in partially refundable credits for the first four years of higher education, was made permanent by the PATH Act.
Computers eligible for 529 plan distributions – The PATH Act allowed tax-preferred distributions from a 529 plan to pay for computers, software, and Internet access for students enrolled at an eligible educational institution.
Earned Income Tax Credit – The PATH Act permanently extended the credit amount for workers with three or more children from 40% to 45% of earned income. It also reduced the credit’s marriage penalty by making higher phase-out thresholds for joint filers permanent.
Educator expense deduction – The PATH Act made the educator expense deduction permanent, allowed the maximum deduction to be increased annually for inflation (it’s capped at $300 for both the 2023 and 2024 tax years), and made professional development classes a deductible expense.
Electric vehicle charging equipment credit – The tax credit for installing electric vehicle charging equipment (and other equipment for refueling alternative-fuel vehicles) was extended by the PATH Act through 2016. [Note: The credit was later enhanced and extended through 2032.]
Mass transit exclusion – The exclusion from gross income for employer-provided mass transit passes and vanpool benefits was increased by the PATH Act. The maximum exclusion, which is adjusted annually for inflation, is $300 for the 2023 tax year and $315 for 2024.
Mortgage debt forgiveness – The tax law allowing homeowners to exclude up to $2 million of forgiven mortgage debt from taxable income was extended by the PATH Act through 2016. [Note: The exclusion was later extended through 2025.]
Qualified charitable distributions from IRAs – The PATH Act permanently extended the provision allowing seniors aged 70½ or older to make tax-free distributions of up to $100,000 per year directly from their individual retirement accounts to qualified charities.
State and local sales tax deduction – The option to deduct state and local sales taxes, instead of income taxes, was made permanent by the PATH Act (this is particularly beneficial for people living in states without an income tax).
Wrongfully incarcerated exclusion – The exclusion from gross income for civil damages, restitution, or other compensation received for wrongful incarceration was added by the PATH Act.
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