The PATH Act And Its Impact On Tax Payers
As tax day looms, small businesses and individuals are beginning to file their tax returns. For many individuals and families on a tight budget, tax returns mean tax refunds. Some people plan to use tax credits to receive a large tax return that they will use to pay off debt, or save for other necessities or modest luxuries. But this year could be a different story.
This year, there could be a delay in refunds this year because of a new bill that aims to crack down on tax fraud. This specific piece of legislation, the ‘Protecting Americans from Tax Hikes Act of 2015,’ generally known as the PATH Act will require additional steps in the process to receive refunds with the Earned Income Tax Credit or the Additional Child Tax Credit.
Individuals who claim one of these credits and file on the earliest day possible could experience a three-week delay in their refunds, with their refunds held until February 15th or later.
Those three additional weeks can be crushing for families on tight budgets or individuals in critical need of those funds.
You might have some questions about these tax laws.
What is the Earned Income Tax Credit and the Additional Child Tax Credit, and why does this delay matter?
Well, these credits are only available to individuals or families who are working but are making a lower income. For example, to qualify for the Earning Income Tax Credit in 2016, the total household income cannot exceed $47,955 if the individual is single with three or more children. Or if the household is married filing jointly with three or more children, the income limit is $53,505. If the family only has one child, the income limit is $39,296 for individuals or $44,846 for married couples filing jointly. Without children, the income limit is $14,880 for individuals and $20,430 for married couples filing jointly.
Few tax credits result in a refund even if the taxpayer did not owe a penny, but this is a true scenario occasionally for individuals or families who file using the Additional Child Tax Credit. The drawback with this tax credit is that if you are eligible for the Additional Child Tax Credit, you will not be able to claim the full $1,000 Child Tax Credit amount.
If you’ve been following along with your calculator, you will quickly realize that some families could be waiting for thousands of dollars this tax season, depending on the family’s household income and the number of qualifying children.
The maximum eligible amount that households with three or more children can receive is $6,269 using the Earned Income Tax Credit. That amount drops to $3,373 for households claiming one child. Individuals without children can receive up to $506.
Why is there such a delay with these tax credits? Does it really take that long to prevent fraudulent tax returns?
Detecting and preventing fraud can be a time-consuming process, but that isn’t the only reason for the delay. This year, tax returns are scheduled to be released on February 15th. Processing those returns can take a few days as there are steps in the process to verify details such as account information. There is a conflict this year, as President’s Day falls on February 20th, and that will delay some returns because banks will be closed on the federal holiday. That simple fact means that some returns will take additional time to show up in the bank accounts of households filing using either of these tax credits.
According to one report), even if you file your tax return early, you should not expect to see a tax return until the week of February 27th,, according to the IRS.
What can be done to speed up the return process for these families?
As usual, e-filing and using direct deposit are always the quickest avenues for receiving tax refunds. If you plan on using either of these tax credits, you should consider signing up for those two benefits when you file your tax return.
If you do not plan to file your tax return using either of these tax credits, you can expect a much faster turn around (21 days or less) for your tax refund.
You can track the status of your federal tax refund online at the IRS website. You will need to know the filing status of the refund, the exact amount of the refund, and either your Social Security number or your Individual Taxpayer Identification number to use the online tool.