The U.S. Treasury Department and Internal Revenue Service (IRS) on August 19 proposed new rules to restrict access to refundable tax credits for certain immigrants. The changes would clarify eligibility requirements for four major tax credits: the adoption tax credit, child tax credit, American Opportunity tax credit, and earned income tax credit. Under the proposed regulations, the refundable portion of these credits would be classified as federal public benefits, potentially disqualifying hundreds of thousands of immigrants from receiving refunds.
The Treasury and IRS stated the rules aim to enforce the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996, which restricts federal public benefits to eligible taxpayers. Treasury Secretary Scott Bessent said in a press release, “American taxpayers should not be forced to foot the bill for benefits going to those who are barred by law from receiving them. These proposed regulations end the abuse, protect the integrity of the tax system, and put Americans first.”
The proposed rules would limit eligibility to U.S. citizens, U.S. nationals, and qualified noncitizens, including those with Social Security numbers and work authorization. Immigrants such as asylum applicants, Temporary Protected Status (TPS) holders, and Deferred Action for Childhood Arrivals (DACA) recipients could be affected. According to tax experts, the changes could impact up to several million people, including 2.6 million asylum applicants in 2023 and 650,000 TPS holders that year, as reported by the Pew Research Center.
The IRS emphasized that refundable tax credits like the Earned Income Tax Credit (EITC) were designed to support low-to-middle income American families and workers. IRS Chief Executive Officer Frank J. Bisignano stated, “Today’s proposed regulations ensure that federally funded benefits are reserved for eligible taxpayers and protect the integrity of every taxpayer dollar.”
The administration estimates that nearly one million people would be ineligible for the refunded portion of the affected credits due to the rule change. The proposed regulations are open for public comment before potential implementation.
Background on Refundable Tax Credits
Refundable tax credits allow households to receive a refund if the credit exceeds their tax liability. The child tax credit, earned income tax credit, adoption tax credit, and American Opportunity tax credit are among the most widely used. Critics argue the proposed rules could disproportionately impact lower-income immigrant families, while supporters contend the changes align with existing federal law restricting benefits to eligible taxpayers.