IRS & Refunds

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PATH Act: A New Tax Law That Could Impact Many Taxpayers

October 11, 2016 : Alison Flores – The Tax Institute

Editor’s Note: Learn more about a new tax law, the PATH Act, and its potential impact on American taxpayers…

Most people who expect a refund each year want to know how soon it will arrive. And many tax filers count on their tax refund to pay for car repairs, holiday debt, and other needs, counting down the days until they get their refund and hitting refresh on “Where’s My Refund?” or the IRS’ mobile app, IRS2Go.

A new law taking effect this tax season could impact how quickly some early filers receive their refunds. Here we will help you understand the impacts of the law.

How did the law get its start?

The Protecting Americans from Tax Hikes, or PATH Act, is a federal law that was enacted in late 2015. It extends expiring tax laws and changes some existing tax law. It took effect immediately and allowed a lot of taxpayers to save money on their 2015 returns.

(Learn more: How a bill becomes a law.)

A part of the PATH Act is a law that affects some taxpayers for the first time this tax year, when they file their 2016 tax returns. This change affects early tax filers with certain refundable credits, which reduces the amount of taxes you owe – and can result in a refund if the credit is greater than the amount of tax owed. The two classes of refundable credits:

  1. The Earned Income Tax Credit (EITC)
  2. The Additional Child Tax Credit (ACTC)

Taxpayers filing early and claiming these credits typically are expecting refunds. Under the new law, the IRS is required to hold refunds claimed by these taxpayers until Feb. 15. And the IRS must hold the entire refund, not just a portion of the refund attributed to the credits.

The new tax law helps detect and prevent tax fraud. It focuses on preventing those who improperly claim the EITC and ACTC from receiving payment. The extended refund release date also gives the IRS more time to ensure taxpayers properly claiming the credits get the refund they are owed.

How do you know if your refund might be affected?

If you file your tax return before mid-February, are due a refund, and claim either the EITC or the ACTC, your refund could be affected. But don’t wait to file if you are ready to file. While the IRS cannot release your refund before Feb. 27, they still expect to issue most refunds in 21 days or less.

In fact, the IRS issues nine out of 10 refunds within 21 days. Check “Where’s My Refund?” or download the IRS2Go Mobile App and check the current status of your refund.

(Tip: To check the status of your refund, you need your SSN (or ITIN), filing status, and the exact amount of your expected refund. You can start checking 24 hours after you e-file your return. Check it once a day. The IRS updates the available information once per day, usually at night.)

Where can you check for updates?

“Where’s My Refund” and IRS2Go will display your expected refund date once your tax return is processed and your refund is approved. Throughout this process, the IRS will be working to detect and prevent fraud. If you check often, here are the different messages you will see.

  • Return Received: This means the IRS has your return and is processing it.
  • Refund Approved: This means the IRS is preparing to direct deposit your refund into your bank account or to mail you a paper check. You should see a personalized refund date.
  • Refund Sent: This means the IRS has sent your refund to your bank for direct deposit or has mailed you a paper check. It can take several days (one to five days, in fact) for the refund funds to be deposited in your bank account. And it could take several weeks for your check to arrive in the mail.

Will your refund be different than expected this year?

The fact that the IRS may have to hold your refund does not change your refund amount. There are a couple of other reasons your refund could be different than expected.

  1. The IRS might have made changes to one or more lines of your tax return when your return was processed, which changed your refund. If this is the case, you should get a letter in the mail explaining the changes.
  2. You may owe past-due taxes, child support, student loans, or other debts, and part of your refund was offset to pay the debt. If this is the case, you should get a letter from the IRS or the Bureau of Fiscal Services explaining what happened.

How soon will you get your refund?

The IRS issues most refunds within 21 days. If you’ve checked “Where’s My Refund?” or IRS2Go and you see “Refund Approved” and your refund date, you need to allow additional time after that date for your bank to receive the funds to make them available for withdrawal. For example, if your refund date is Feb. 17, you might expect to see the funds deposited in your account within one to five days. If you receive a paper check you need to allow several weeks for its delivery.

If it’s been 21 days since you e-filed your tax return and you still don’t see “Refund Approved”, you may want to follow up with the IRS or let a tax professional assist you with the communication.

For more information on Protecting Americans from Tax Hikes, or PATH Act, see “2016 Tax Season Refund Frequently Asked Questions” or check out the H&R Block “PATH Act” newsroom

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Alison Flores – The Tax Institute

Alison Flores – The Tax Institute

H&R Block

Alison Flores, JD, is a principal tax research analyst at The Tax Institute. Alison specializes in the Patient Protection and Affordable Care Act, same-sex marriage, tax preparer regulation, and individual income tax issues.

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