PATH Act of 2015: A Summary of Tax Provisions

The Protecting Americans from Tax Hikes (PATH) Act of 2015 brought stability and predictability to the U.S. tax code. For years, Congress had addressed temporary tax provisions, known as “tax extenders,” by retroactively renewing them for short periods. This practice created uncertainty for individuals and businesses making long-term financial decisions.

The PATH Act broke this cycle by making many popular tax breaks permanent. The act also extended other tax benefits for multiple years and introduced procedural changes aimed at improving tax administration and combating fraud.

Permanent Tax Provisions for Individuals

The PATH Act of 2015 cemented several tax benefits for individuals, removing the annual uncertainty that had surrounded them. The act made the American Opportunity Tax Credit (AOTC) permanent. This credit helps offset the cost of higher education by allowing a credit of up to $2,500 per eligible student for the first four years of post-secondary education. The law locked in the higher income phase-out thresholds of $80,000 for single filers and $160,000 for those married filing jointly.

For families with children, the act made a feature of the Child Tax Credit (CTC) permanent by securing a lower earned income threshold for the refundable portion of the credit. Subsequent legislation expanded the credit, and under the rules effective through 2025, the CTC is $2,000 per qualifying child, with a refundable portion of up to $1,400, adjusted for inflation.

The Earned Income Tax Credit (EITC), a benefit for low- and moderate-income workers, also received permanent enhancements. The PATH Act solidified a higher credit percentage for families with three or more qualifying children and increased the income phase-out thresholds for married couples to reduce the “marriage penalty.”

Another provision made permanent was the option for taxpayers to deduct state and local general sales taxes instead of state and local income taxes. This choice is valuable for residents in states without a personal income tax. However, the Tax Cuts and Jobs Act of 2017 (TCJA) introduced a limitation. The total deduction for all state and local taxes is capped at $10,000 per household per year, a limit scheduled to expire after 2025.

The law also permanently established the above-the-line deduction for educator expenses, allowing eligible K-12 educators to deduct unreimbursed classroom supplies, and indexed this deduction to inflation. For 2025, eligible educators can deduct up to $300, and if two are married filing jointly, they can deduct up to $600. Professional development expenses are also a qualified cost.

The PATH Act also made permanent a provision allowing individuals aged 70½ and older to make tax-free Qualified Charitable Distributions (QCDs) from their IRAs to a charity. These QCDs are not included in the donor’s gross income and can satisfy their Required Minimum Distribution (RMD) for the year. While subsequent legislation increased the age for RMDs, the eligibility age for a QCD remains 70½. The annual limit for QCDs is indexed for inflation and is $108,000 for 2025.

Permanent Tax Provisions for Businesses

The PATH Act delivered lasting changes for businesses by making several tax provisions permanent, enabling more effective long-term investment. A primary change was making enhanced Section 179 expensing permanent. This provision allows businesses to deduct the full purchase price of qualifying new or used equipment and off-the-shelf software in the year it is placed in service.

While the PATH Act made this provision permanent, subsequent inflation adjustments have increased the benefit. For 2025, the maximum expensing amount is $1,250,000, and the investment phase-out threshold is $3,130,000. The deduction is reduced dollar-for-dollar for any amount spent over the threshold.

Another provision made permanent was the Research and Development (R&D) tax credit, designed to incentivize business innovation in the United States. The PATH Act also enhanced its utility for smaller companies. The law allowed eligible small businesses to use the R&D credit to offset their Alternative Minimum Tax (AMT) liability. It also created an opportunity for qualified startups with less than $5 million in gross receipts to apply the credit against their employer-paid FICA taxes.

The act also established a permanent 15-year straight-line cost recovery period for Qualified Improvement Property (QIP). This applies to many improvements to the interior of nonresidential buildings like restaurants and retail stores. Without this provision, these improvements would be subject to a much longer 39-year depreciation schedule.

Extended and Modified Tax Provisions

Not all provisions in the PATH Act were made permanent; the legislation also extended several tax benefits for a multi-year period, often with modifications. A prominent example is bonus depreciation, which allows businesses to immediately deduct a percentage of the cost of new qualifying assets in the first year they are placed in service.

The PATH Act extended 50% bonus depreciation with a scheduled phase-down. However, the TCJA later increased bonus depreciation to 100% for property placed in service between September 27, 2017, and the end of 2022. That 100% rate has since begun to phase down, and for property placed in service in 2025, the bonus depreciation rate is 40%.

Another multi-year extension was for the Work Opportunity Tax Credit (WOTC). This credit provides businesses with an incentive to hire individuals from specific targeted groups who have faced barriers to employment, such as veterans and ex-felons. The credit is currently available for employers who hire eligible individuals through the end of 2025.

Tax Administration and Procedural Changes

The PATH Act of 2015 also introduced several changes to tax administration and filing procedures. A primary goal of these adjustments was to combat identity theft and tax refund fraud. To achieve this, the act accelerated the filing deadlines for employers and payers.

The law established a new, earlier deadline of January 31 for employers to file Form W-2 and for payers to file Form 1099-MISC reporting nonemployee compensation. Previously, these forms were not due to the government until late February or March. This change provides the IRS with important data much earlier in the filing season to verify income before issuing refunds.

The legislation also brought modifications to Section 529 college savings plans. It made permanent the treatment of computers, peripheral equipment, software, and internet access as qualified higher education expenses. This change acknowledged the modern necessities of a college education and provided families with greater flexibility.

The PATH Act also included reforms related to Real Estate Investment Trusts (REITs), primarily involving the Foreign Investment in Real Property Tax Act (FIRPTA). The new rules were designed to encourage foreign investment in U.S. real estate by easing tax burdens on foreign investors in U.S. REITs. These adjustments aimed to make the U.S. real estate market more competitive.