What is the Protecting Americans Against Tax Raising Act (PATH)?
The Tax Protection for Americans (PATH) Act, 2020 was created to protect taxpayers and their families from fraud and to permanently extend many expiring tax laws. The law affects the timing of certain refunds for tax returns filed each year before February 15. Individual taxpayer identification number (ITIN).
Key points to remember
- The Tax Protection for Americans (PATH) Act, 2020 includes changes to tax laws that extend many expiring laws and protect taxpayers from fraud.
- The PATH Act contains provisions affecting certain taxpayer credits for individuals and businesses.
- Under the PATH Act, taxpayers who file an earned income tax credit (EITC) or an additional child tax credit (ACTC) at the start of the year may have to wait until February 15 to receive their reimbursement.
- The PATH Act retroactively extends the Work Opportunity Tax Credit (WOTC), a credit for employers who hire people from target groups who have consistently faced barriers to employment.
Understanding the PATH Act
The PATH Act was introduced to ensure that all Americans receive correct reimbursement from the Internal Revenue Service (IRS) by extending expired tax laws and introducing new laws to reduce fraud. In many cases, the PATH Act does not change the amount of reimbursement an individual or family receives or when it is reimbursed. However, some tax credits are now being watched more closely.
Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC)
There is no change in the tax reporting process due to the PATH Act. In most cases, the IRS plans to send refund checks within 21 days, as it did in previous years.
However, if you file an earned income tax credit (EITC) or an additional child tax credit (ACTC) at the beginning of the year, the IRS will hold your refund check until February 15. This means that you may not receive your refund before the end of February. . The reason for the possible delay in reimbursement for first applicants is to give the IRS additional time to identify fraudulent claims and to prevent the reimbursement of identity thieves.
The EITC applies to low- and middle-income families, most often those with children. Tax credits depend on the number of children. The income threshold for applying for the CACA is $ 2,500.
If the EITC or the CCTA does not apply to you, or if you file taxes after February 15, the PATH Act does not affect the timing of your refund.
New and extended tax provisions
The PATH Act has renewed many expired tax laws and introduced some new laws, which affect both individuals and businesses. Many tax deductions that were due to expire, such as tuition deductions, certain charitable contributions, and residential energy credits, were extended with retroactive credit for 2020.
Below are some of the many changes / extensions to the PATH law for individuals and businesses.
Extension of the tax credit for the possibility of working (WOTC)
Employers may be eligible for a work opportunity tax credit (WOTC) if they hire people from specific target groups who have historically encountered barriers to employment. The PATH Act retroactively extends eligibility to WOTC for workers hired on or after January 1, 2020. The WOTC includes nine categories of workers and an additional category for long-term unemployment beneficiaries hired on or after January 1, 2020.
Exclusion for wrongful imprisonment
The PATH Act includes an exclusion which allows an eligible person wrongly imprisoned to have one year to file claims for refunds related to restitution or compensation (including civil damages) received and reported in a previous taxation year.
According to the “FAQ on wrongful imprisonment” published by the IRS, the PATH Act prevents wrongfully imprisoned people from having to include as income any compensation received in connection with wrongful imprisonment.
Renewal of the individual taxpayer identification number (ITIN)
The PATH Act requires certain taxpayers to renew their Individual Tax Identification Number (ITIN) starting in October 2020. Taxpayers who have not used their ITIN in a federal income tax return at least once in the three years previous must renew their ITIN in order to use it. Using an expired ITIN could result in delayed reimbursement or ineligibility for tax credits.