The 2015 PATH Act implemented many important changes to the tax code that will have long-lasting effects. Here’s a list of frequently asked questions about the PATH Act along with answers.
Q: What is the PATH Act?
A: PATH stands for Protecting Americans from Tax Hikes. The PATH Act is also referred to as a tax extenders bill. Almost every year there’s a tax extenders bill, which extends many of the credits and provisions of the tax code that would otherwise expire.
Q: What tax provisions were extended in the 2015 PATH Act?
A: There are a number of tax provisions that were extended in the 2015 PATH Act. Here are some of the major extensions:
Enhanced Child Tax Credit — permanently extended
American Opportunity Tax Credit — permanently extended
Earned Income Tax Credit — permanently extended
Work Opportunity Tax Credit — extended through 2019
New Markets Tax Credit — extended through 2019
Research and Development Tax Credit — permanently extended
Q: Why is the 2015 PATH Act important?
A: Unlike past extenders bills, the PATH Act had a number of key tax provisions that were extended “permanently.” These provisions have been extended indefinitely, without an expiration date.
Q: What parts of the PATH Act apply to me?
A: Depending on the types of credits you claim on your taxes, several of the provisions of the PATH Act may apply to you as an individual or business:
Employer Wage Credit for Active Duty Member Employees
- The provision allowing employers to claim a 20 percent wage credit for employees called to active service duty has been permanently extended.
- Beginning in 2016, this credit is available to businesses of any size. Previously, the credit was only available for companies with 50 or more employees.
Work Opportunity Tax Credit
- The Work Opportunity Tax Credit gives employers who hire long-term unemployed individuals (those who have been unemployed 27 weeks or longer) tax credit for part of the employees’ wages.
- Starting in 2016, employers who hire unemployed individuals can claim a 40 percent credit of the first $6,000 in wages. This is an increase over the previous provision.
Increased Expensing Limitations
- For small businesses, the amount a small business can expense has been raised to $500,000. Phase out amounts have been increased to $2 million.
- The provision allowing deductions for computer software, qualified real estate, restaurant properties, and retail properties has been permanently extended.
- Air conditioning and heating units installed after 2015 are now also eligible for expensing.
Qualified Charitable Donations?
- The PATH Act reinstated Qualified Charitable Donations (QCDs). This tax provision had expired and was reinstated retroactively starting January 1, 2015.
- For businesses, one of the charitable giving donation provisions the act extended allows non-corporate business taxpayers to deduct wholesale food donations to charity.
Earned Income Tax Credit (EITC) Changes
- Starting in December 2015, taxpayers cannot submit amended returns claiming EITCs for previous years when a qualifying child did not have a social security number.
- If the IRS finds that a taxpayer has fraudulently claimed an EITC, the individual can be barred from claiming EITCs for 10 years.
- Incorrect or erroneous refund and credit EITC claims are now subject to a penalty.
- When determining an underpayment penalty, incorrectly claimed refundable credits will now be taken into account.
- Beginning in 2017, refunds for federal tax returns that claim an EITC will not be available until the week of February 27. For tax returns that don’t claim EITCs, refunds will be issued within the standard 21 days or less.
American Opportunity Education Credit (AOEC) Changes
- If it is determined that a taxpayer has fraudulently claimed the AOEC, the IRS can bar them from claiming the credit again for the next two years.
- Taxpayers cannot file amended returns to claim the AOEC for years when an eligible child did not have either a social security number or an Individual Taxpayer Identification Number (ITIN).
- For the AOEC, the school or university’s Employer Identification Number (EIN) must be included on form 8863, or the return will automatically be rejected.
For more information about the PATH Act, contact Liberty Tax directly at 1-877-at-Liberty, or visit a conveniently located Liberty Tax office near you. For updates on all things taxes, follow Liberty Tax on Facebook and Twitter.