Although the most recent Protecting Americans from Tax Hikes (PATH) Act went into effect on December 18, 2015, there are several parts of the act that became effective in the beginning of 2017 and apply to the current tax year.

The PATH Act is also referred to as an extender act, which extends deadlines on many tax credits and other provisions in the tax code. Although there are a number of provisions in the 2015 Act, the provisions listed below apply to individuals and small business owners and are highlighted because the changes are new and will affect taxes filed this year.

Delay in Refunds for Certain Taxpayers

Starting in 2017, the IRS will not release federal income tax refunds to taxpayers who claimed either Earned Income Tax Credits (EITC) or the Additional Child Tax Credit (ACTC) until February 15 or later.

Earned Income Tax Credit

The EITC reduces the amount of taxes for taxpayers with low to moderate income levels, especially if he or she has children. To qualify for the earned income tax credit, the taxpayer must have an adjusted gross income of less than:

Qualifying Children Claimed

 

Zero

One

Two

Three or more

Single, Head of Household or Widowed

$14,880

$39,296

$44,648

$47,955

Married Filing Jointly

$20,430

$44,846

$50,198

$53,505

 

For additional information on whether you qualify for the EITC, visit the IRS’s EITC explanation page.

 

Additional Child Tax Credit

The ACTC allows taxpayers with children to claim an additional credit toward their tax liability. This refundable tax credit can be used if the credit amount the taxpayer received for the Child Tax Credit is more than the total tax he or she owes.

For example, the tax credit for each qualifying child under the Child Tax Credit (which is not a refundable tax credit) is $1000. If the taxpayer has a $500 tax liability before applying the Child Tax Credit, he or she may be able to claim the Additional Child Tax Credit to receive a refund for the difference (in this case, $500). Click here for more information about the Additional Child Tax Credit.

The IRS says this delay in paying out refunds will help combat fraud related to identity theft and prevent people from submitting fabricated earnings or claiming false withholdings.

The 2015 PATH Act prevents paying out any portion of the taxpayer’s refund before February 15, not just the part associated with the EITC and ACTC. Despite this change, the IRS will continue to accept and process tax returns and provide refunds as usual.

For taxpayers that are not claiming EITC or ACTC credits, refunds will be processed within the standard 21 days. After February 15, all refunds – without or without the EITC and ACTC credits – will be processed within 21 days.

 

New Deadline for Submitting W-2s and 1099 MISC Forms for Small Business Owners

Aside from the new delay in refunds for taxpayers that claim the EITC and ACTC, the IRS has changed the date for employers to submit W-2s. Business owners must now turn in W-2 forms for their employees by January 31 – one month earlier than in previous years. This new deadline also applies to submitting 1099 MISC forms for non-employee compensation to independent contractors. January 31 is also the deadline for employers to distribute W-2 forms to employees.

This new deadline is another way for the IRS to combat fraud. The IRS will now be able to verify an employee’s income according to their employer-submitted W2 since they will now have time to process the W2 information before most tax returns are submitted. The IRS predicts that this new deadline will not just reduce fraud, but also streamline the verification process, allowing many taxpayers to get their tax refunds faster.

Tax changes can cause even more confusion in a complicated system. If you need assistance, contact your professional tax preparer. To stay up to date on important tax tips all year long, follow us on Facebook and Twitter!