The PATH Act makes permanent over 20 tax relief provisions, extends for 5 years or 2 years a number of other tax relief provisions that expired at the end of calendar year 2014, provides for a 2-year moratorium on the medical device tax, and includes a number of additional tax policy changes. Click here for a section-by-section analysis of the bill provided by the Ways and Means Committee.
Major provisions of the bill include:
Individual Tax Extenders
Enhanced Child Tax Credit Made Permanent—The bill makes permanent the enhanced child tax credit. To the extent the CTC exceeds the taxpayer’s tax liability, the taxpayer is eligible for a refundable credit (the additional child tax credit) equal to 15 percent of earned income in excess of a threshold dollar amount (the “earned income” formula). The provision permanently sets the threshold amount at an unindexed $3,000. For more information about the tax credit click here for a CRS Report.
American Opportunity Tax Credit Made Permanent—The bill makes permanent the American Opportunity Tax Credit, which allows taxpayers generally to claim a tax credit up to $2,500 for qualified tuition and related postsecondary education expenses. The full credit is available to individuals, whose modified adjusted gross income is $80,000 or less, or $160,000 or less for married couples filing a joint return. The credit is phased out for taxpayers with incomes above these levels. For more information about the tax credit click here for a CRS report.
Enhanced Earned Income Tax Credit Made Permanent—The bill makes permanent enhanced provisions of the Earned Income Tax Credit (EITC). The EITC is available to low- and moderate-income workers. Under current law, the EITC amount has been temporarily increased for individuals with three or more children and the EITC marriage penalty has been reduced by increasing the income phase-out range by $5,000 (indexed for inflation) for those who are married and filing jointly. The bill makes these provisions permanent. For more information about the tax credit click here for a CRS report.
K-12 Teacher Classroom Expenses Deduction Made Permanent—The bill makes permanent the above-the-line deduction (currently capped at $250) for the eligible classroom expenses of elementary and secondary school teachers. The provision also modifies the deduction to index the $250 cap to inflation and include professional development expenses. This provision was first enacted on a temporary basis in 2002 and has regularly been included in tax extender packages. For more information about the tax deduction click here for a CRS report.
State and Local Sales Taxes Deduction—The bill permanently extends the option to take an itemized deduction for State and local general sales taxes in lieu of an itemized deduction for State and local income taxes. An itemized sales tax deduction allows taxpayers to deduct State and local sales tax they have paid from their federal taxes. Since 2004, there has been a temporary provision allowing for itemized deductions of State and local sales tax when determining taxable income; however, this deduction expired on January 1, 2015. Allowing for an itemized deduction for State and local income taxes, but not for State and local sales taxes, creates a tax liability disparity for residents of States that impose a sales tax rather than an income tax. For more information about the tax deduction click here for a CRS Report.
On April 16, 2015, the House passed H.R. 622, the State and Local Sales Tax Deduction Fairness Act of 2015, by a vote of 272 to 152. H.R. 622 made permanent an itemized deduction for State and local general sales taxes. The Senate has not acted on the House-passed bill.
Tuition and Related Expenses for Higher Education Deduction—The bill extends through 2016 the above-the-line deduction for qualified tuition and related expenses for higher education. The deduction is capped at $4,000 for an individual whose adjusted gross income (AGI) does not exceed $65,000 ($130,000 for joint filers) or $2,000 for an individual whose AGI does not exceed $80,000 ($160,000 for joint filers). The tuition and fees deduction was originally enacted in 2001 and went into effect in 2002. For more information about the tax deduction click here for a CRS Report.
IRA Charitable Donations Exclusion—The bill permanently extends the ability of individuals at least 70½ years of age to exclude from gross income qualified charitable distributions (capped at $100,000 per year) from Individual Retirement Accounts (IRAs). This exclusion was originally enacted in 2006. For more information about the tax exclusion click here for a CRS Report.
Homeowner Related Deductions—The bill generally extends through 2016 the treatment of qualified mortgage insurance premiums as interest for purposes of the mortgage interest deduction and extends the exclusion from gross income of discharge of qualified principal residence indebtedness. The discharge of qualified principal residence indebtedness includes any debt incurred in acquiring, constructing, or substantially improving a principal residence or any debt secured by the principal residence resulting from the refinancing of debt for the residence. A principal residence is generally the home where the taxpayer lives most of the time. A taxpayer can have only one principal residence at a time.
Employee Parking Benefit Exclusion—The bill permanently extends certain parking benefits from being counted toward an employee’s wages for payroll tax purposes, and from gross income for income tax purposes.
Business Tax Provisions
Two-year Moratorium on the Medical Device Excise Tax—The bill provides for a two-year moratorium on the 2.3-percent excise tax imposed on the sale of medical devices, established by the ACA. The tax will not apply to sales during calendar years 2016 and 2017. For more information about the tax click here for a CRS report.
Research and Development (R&D) Tax Credit Extension and Modification Made Permanent— The bill makes permanent the research and development (R&D) tax credit and the alternative simplified credit (ASC) at 14 percent. The provision also modifies the R&D credit to expand benefits for small businesses. For more information about the tax exclusion click here for a CRS Report.
On May 20, 2015, the House passed H.R. 880, the American Research and Competitiveness Act of 2015, by a vote of 274 to 145. H.R. 880 is similar to the R&D provision in this bill, as it, among other things, restructures the ASC tax credit.
Low-income Housing Tax Credit Made Permanent—The bill makes permanent the temporary 9 percent minimum credit rate for the low income housing tax credit for non-Federally subsidized new buildings to allocations made before 2017. The low-income housing tax credit (LIHTC) program is one of the federal government’s primary policy tools for encouraging the development and rehabilitation of affordable rental housing. These non-refundable federal housing tax credits are awarded to developers of qualified rental projects via a competitive application process administered by state housing finance authorities. For more information about the tax credit click here for a CRS Report.
New Markets Tax Credit Extension—The bill extends the new markets tax credits (NMTC) through 2019 with an annual allocation of $3.5 billion. The NMTC is a non-refundable tax credit intended to encourage private capital investment in eligible, impoverished, low-income communities. For more information about the tax credit click here for a CRS Report.
Modification of Work Opportunity Tax Credit Extension—The bill extends through 2019 the work opportunity tax credit (WOTC). The provision also modifies the credit to apply to employers who hire qualified long-term unemployed individuals (i.e., those who have been unemployed for 27 weeks or more) and increases the credit with respect to such long-term unemployed individuals to 40 percent of the first $6,000 of wages. The WOTC allows employers that hire individuals with certain characteristics to claim a tax credit equal to a portion of the wages paid to those individuals. WOTC-eligible populations include recipients of certain public benefits (such as the Supplemental Nutrition Assistance Program or Temporary Assistance to Needy Families), qualified veterans, ex-felons, and other specified populations. For more information about the tax credit click here for a CRS Report.
Depreciation of Leasehold Improvements—The bill permanently extends the 15-year recovery period for qualified leasehold improvements, qualified restaurant property, and qualified retail improvement property to property placed in service to encourage businesses to make investments in their businesses and to hire new employees.
Bonus Depreciation Extension and Modifications—The bill extends 50-percent bonus depreciation for property acquired and placed in service through 2019 and makes certain modifications to the use of AMT tax credits. The bonus depreciation allowance enables taxpayers to expense a portion of the cost of qualified assets bought and placed in service. For more information about the provision click here for a CRS Report.
Section 179 Expensing Made Permanent and Modified—The bill makes permanent the Section 179 small business expensing on certain business assets. Under Section 179, taxpayers may expense up to $500,000 in business assets per year, and the benefit is reduced if the taxpayer places in service more than $2 million in qualified business property during the year. These limits are indexed to inflation starting beginning in 2016. For more information about the provision click here for a CRS Report.
Small Business Long-term Stock Exclusions—The bill extends the temporary exclusion of 100 percent of the gain on certain small business stock for non-corporate taxpayers to stock acquired before January 1, 2017, and held for more than five years. For more information about the provision click here for a CRS Report.
Energy Related Provisions
Biodiesel and Renewable Diesel Incentives Extension —The bill extends through 2016 the existing $1.00 per gallon tax credit for biodiesel and biodiesel mixtures, and the small agri-biodiesel producer credit of 10 cents per gallon. For more information about the provision click here for a CRS Report.
Fuel Cell Motor Vehicles Credit Extension—The bill extends through 2016 the credit for purchases of new qualified fuel cell motor vehicles. The provision allows a tax credit of between $4,000 and $40,000 depending on the weight of the vehicle for the purchase of such vehicles. Click here for a CRS report on the credit.
New Homes Energy-Efficient Credit Extension—The bill extends through 2016 the tax credit for manufacturers of energy-efficient residential homes. An eligible contractor may claim a tax credit of $1,000 or $2,000 for the construction or manufacture of a new energy efficient home that meets qualifying criteria.
Program Integrity Improvements for Refundable Tax Credits––The bill includes a dozen provision to improve compliance and reduce fraud with respect to the earned income tax credit (EITC), the child tax credit (CTC), and the American Opportunity Tax Credit (AOTC), including:
Taxpayer Identification Number (ITIN) Reforms—The bill requires individuals who were issued ITINs before 2013 to renew their ITINs on a staggered schedule between 2017 and 2020. The provision also provides that an ITIN will expire if an individual fails to file a tax return for three consecutive years. ITINs are generally issued by the IRS to individuals, like undocumented workers, who are not eligible for Social Security Numbers, but are liable for certain taxes.
Limit on Retroactive Claims for Credits without Social Security number or Taxpayer Identification Number (ITIN) Reforms––The bill prevents retroactive claims of the EITC, the CTC, and the AOTC after issuance of new SSNs or ITINs.
W-2 Reporting and Verification Reforms––The bill provides the IRS with information on employee wages faster and allows additional time for tax authorities to verify that W-2 information matches credit eligibility, while also improving the IRS’ ability to stop identity thieves.
Safe Harbor from Certain Fees—The bill establishes a safe harbor from penalties for the failure to file correct information (de minimis errors) on tax returns if the error is generally $100 or less.
Internal Revenue Service (IRS) Reforms—The bill makes various changes to current law to increase accountability at the IRS. The bill includes provisions contained within the following bills that were previously passed in the 114th Congress: H.R. 1058 – Taxpayer Bill of Rights Act of 2015; H.R. 1152 – IRS Email Transparency Act; H.R. 1026 – Taxpayer Knowledge of IRS Investigations Act; H.R. 1314 – Ensuring Tax Exempt Organizations the Right to Appeal Act; H.R. 1295 – IRS Bureaucracy Reduction and Judicial Review Act; H.R. 709 – Prevent Targeting at the IRS Act; and H.R. 1104 – Fair Treatment for All Gifts Act.
Rollovers from Other Retirement Plans into Simple Individual Retirement Accounts (IRAs)—The provision allows a taxpayer to roll over amounts from employer-sponsored retirement plans, such as 401(k) plans, to SIMPLE IRAs.
Real Estate Investment Trust (REITs) Provisions— The bill makes various improvements to the existing laws governing REITs. A REIT is a type of security that invests in real estate through property or mortgages and often trades on major exchanges like a stock. REITs provide investors with an extremely liquid stake in real estate. They receive special tax considerations and typically offer high dividend yields. REITs, an investment vehicle for real estate that is comparable to a mutual fund, allow both small and large investors to acquire ownership in real estate ventures, own and in some cases operate commercial properties such as apartment complexes, hospitals, office buildings, timber land, warehouses, hotels and shopping malls. 
U.S. Capitol Police and Supreme Court Police Retirement Accounts—The bill expands the provision allowing public safety officers to make withdrawals from retirement accounts, beginning at age 50, without incurring the 10 percent early withdrawal penalty to include U.S. Capitol Police offers, Supreme Court Police officers, and diplomatic security special agents. H.R. 2146, the Defending Public Safety Employees’ Retirement Act, which was enacted on June 29, 2015, previously expanded the provision to cover Federal law enforcement officials but inadvertently omitted the other categories of public safety officers.
Section 529 College Savings Plan Accounts Improvements—The bill expands the definition of qualified higher education expenses for which tax-preferred distributions from 529 accounts are eligible to include computer equipment and technology. The bill also modifies 529-account rules to treat any distribution from a 529 account as coming only from that account, even if the individual making the distribution has more than one account. The provision treats a refund of tuition paid with amounts distributed from a 529 account as a qualified expense if such amounts are re-contributed to a 529 account within 60 days. For more information about Section 529 plans click here for a CRS Report.
U.S. Tax Court Administration—The bill makes certain changes to the authorization and function of the U.S. Tax Court to improve efficiency and accountability.
Revenue Provisions—The bill makes several changes that will increase revenues including: modifying the deduction for energy efficient commercial buildings; changing tax treatment of certain motion picture employees; modifying tax credits for liquefied natural gas and liquefied petroleum gas; and making certain changes to the tax liability of clean coal power plants.
Pay-As-You-GO (PAYGO)—The bill also provides that the budgetary effects of the Act shall not be entered on either PAYGO scorecard maintained pursuant to section 4(d) of the Statutory Pay-As-You-Go Act of 2010 or certain Senate Rules. The Statutory Pay-As-You-Go Act provides a budget enforcement mechanism that generally requires that direct spending and revenue legislation enacted into law not increase the deficit.
 See Ways and Means Section-by-Section Analysis of the Protecting Americans From Tax Hikes Act of 2015
 See IRS website, American Opportunity Tax Credit
 Above-the-line deductions are subtracted from your gross income, and the resulting number is your adjusted gross income (AGI). Above-the-line tax deductions apply whether or not taxpayers itemize on their tax returns. See IRS website, An Overview of Tax Deductions
 See CRS Report, “Tax Provisions that Expired in 2014 (“Tax Extenders”),” October 1, 2015.
 See House Report 114-51 at 5.
 See IRS website, What is qualified principal residence indebtedness?
 See House Report 114-306
 See Investopedia Definition
 See CRS Report, “The Statutory Pay-As-You-Go Act of 2010: Summary and Legislative History,” September 13, 2010.
There are a number of temporary tax provisions in the Internal Revenue Code, many of which expired at the end of 2014. If these tax provisions are not extended retroactively, taxpayers will be unable to utilize these credits and deductions when filing their 2015 tax returns. The PATH Act makes permanent nearly two dozen of these provisions and extends many the others, preventing tax increases on families and businesses that will begin filing their 2015 tax returns early next year.
According to Ways and Means Committee Chairman Brady “By delivering permanent tax relief, we’re making it easier for Americans to keep more of their own money, find new jobs, and increase their wages. Businesses will also be able to invest with confidence in new equipment, research and jobs to grow the local economy. This bill is an important piece of our plan to replace our broken tax code with a simpler, fairer system that actually works for the American people. By passing this bill now, Congress will have the freedom in the New Year to move forward with comprehensive tax reform that grows our economy.”
 See Press Release—“Brady, Hatch, Wyden Announce Deal to Provide Responsible Tax Relief for American Families, Job Creators & Entrepreneurs,” December 16, 2015.
The Joint Committee on Taxation (JCT) estimates that enacting the bill would reduce revenue by $622 billion over the 2016 to 2025 period.
For questions or further information please contact John Huston with the House Republican Policy Committee by email or at 6-5539.