What to Know About the PATH Act
The PATH Act, officially known as the Protecting Americans from Tax Hikes Act of 2015, introduced several crucial changes affecting your taxes today. It not only aimed to curb fraud but also made significant adjustments to popular tax credits and deductions. Understanding how the PATH Act works can help you avoid surprises and ensure that you get the maximum tax benefits.
How Does the PATH Act Help Prevent Fraud?
A key feature of the PATH Act is its anti-fraud measures, designed to prevent fraudulent claims related to popular tax credits like the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC). By holding refunds for filers claiming these credits until at least February 15, the IRS has more time to verify that the information on tax returns matches what’s reported by employers on W-2 forms. This delay may seem inconvenient, but it’s part of the law’s effort to ensure that only legitimate claims are processed.
What Penalties Are There for Improper Claims Under the PATH Act?
The PATH Act doesn’t just delay refunds; it also enforces severe penalties for incorrect claims. If the IRS finds that you’ve fraudulently claimed a tax credit, such as the ACTC, EITC, or American Opportunity Tax Credit, you could be barred from claiming it for up to 10 years. Even if you claim a credit incorrectly due to careless mistakes, you may face a two-year waiting period before you can claim it again. These rules emphasize the importance of accurate filing.
How the PATH Act Affects Taxpayer Identification Numbers
The PATH Act also introduced stricter rules for taxpayer identification numbers (TINs). To claim the EITC, ACTC, or American Opportunity Tax Credit, you must provide a correct Social Security Number (SSN) for yourself, your spouse, and any qualifying children. These rules ensure that fraud is minimized and that only those who are eligible for these credits can claim them. If your tax return is amended or filed late and doesn’t meet the TIN requirement by the deadline, your claims could be rejected.
Which Tax Benefits Were Extended or Improved by the PATH Act?
In addition to tightening fraud prevention, the PATH Act made permanent several tax breaks that benefit individuals and families. For example, the law made the American Opportunity Tax Credit permanent, allowing up to $2,500 for the first four years of higher education. It also extended the Earned Income Tax Credit for workers with three or more children, providing a larger credit amount. Additionally, it made it easier for low-income families to claim the refundable portion of the Child Tax Credit, making it more beneficial for those in need.
Can I Use 529 Plan Funds for Technology Purchases Under the PATH Act?
Another significant change was the expansion of what 529 plan funds could be used for. Before the PATH Act, 529 plans were mainly for educational expenses like tuition. However, the Act allowed for the use of these funds to pay for computers, software, and internet access for students enrolled at eligible educational institutions. This provision is a great help for families who need technology for learning but want to avoid paying out of pocket.
How Does the PATH Act Affect Tax Credits for Teachers and Charitable Giving?
The PATH Act also improved deductions for educators and made them permanent. Teachers and educators can now deduct up to $300 for unreimbursed classroom expenses, and this amount is adjusted for inflation each year. The PATH Act further helped with charitable giving by allowing seniors aged 70½ or older to make tax-free distributions from IRAs to qualified charities. These changes ensure that taxpayers can take advantage of additional tax breaks for education and charitable donations.
How Can the PATH Act Impact Your Tax Filing?
The PATH Act has broad implications for your taxes, from refund delays to stricter rules on claiming credits. While some of its provisions can make your filing process a little longer, they ultimately help ensure that your tax return is accurate and that only legitimate claims are processed. However, given the complexity of these rules, it’s clear that enlisting the help of a skilled tax professional is more important than ever.
Why Do You Need a Tax Professional for the PATH Act?
Understanding the PATH Act’s changes and how they affect your specific tax situation can be difficult. With new rules around refundable credits, filing deadlines, and tax benefits, working with a tax professional is essential to maximize your tax savings and avoid penalties. At Gudorf Tax Group, our team of seasoned tax professionals can guide you through the complexities of the PATH Act and ensure your tax return is filed promptly and accurately.
Schedule a Consultation Today with Gudorf Tax Group
Understanding the PATH Act and how it impacts your taxes may seem stressful, but you don’t have to tackle it alone. Gudorf Tax Group’s tax professionals are here to help. Contact us today to schedule a consultation and ensure that your taxes are prepared accurately and on time.
