The Treasury Department and IRS proposed regulations on Aug. 19 that would block an estimated 200,000 to 700,000 noncitizen filers from receiving refund checks tied to four federal tax credits: the earned income tax credit, child tax credit, adoption tax credit, and American opportunity tax credit.
The rule would reclassify the refundable portions of these credits as federal public benefits under the 1996 welfare reform law known as Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA).
Projected savings range from $700 million to $2.6 billion for 2026 alone. The rule is not final, but filers using Individual Taxpayer Identification Numbers (ITINs) instead of Social Security numbers already face a potential eligibility shift.
How refundable credits would be reclassified as federal public benefits
Under current IRS practice, refundable tax credits have not been treated as “federal public benefits” under PRWORA of 1996.
The proposed regulations change that, drawing on a Justice Department Office of Legal Counsel analysis concluding these four credits meet the statutory definition, Accounting Today reported.
Scott Bessent, Treasury Secretary, said the regulations protect taxpayer dollars from unauthorized benefit claims.
Related: Bessent says Treasury changing who’s eligible for tax-credit refunds
“American taxpayers should not be forced to foot the bill for benefits going to those who are barred by law from receiving them,” Bessent said. “These proposed regulations end the abuse, protect the integrity of the tax system, and put Americans first.”
Only the refundable portion is affected, the amount exceeding a filer’s tax liability that gets paid as a cash refund. Filers who do not qualify as “qualified aliens” could still use the non-refundable portion to offset taxes owed.
Anyone claiming the refundable portion must declare eligibility under penalty of perjury. On joint returns, only one spouse must meet the citizenship or qualified-alien threshold, Accounting Today reported.
4 tax credits worth thousands face a new eligibility barrier
The proposed rule covers four refundable tax credits that collectively served about 24 million taxpayers in recent years, The Center Square reported.
4 credits affected by the proposed rule
- Earned income tax credit (EITC): Targets low-to-middle-income workers. Worth up to $8,046 for filers with three or more qualifying children for the 2025 tax year, the IRS confirmed.
- Child tax credit (CTC): Worth up to $2,200 per qualifying child for 2025, with the refundable additional child tax credit capped at $1,700, the IRS noted.
- American opportunity tax credit (AOTC): Covers higher education costs, worth up to $2,500, with 40% (up to $1,000) refundable.
- Adoption tax credit: Worth up to $17,280 per eligible child for 2025, with up to $5,000 refundable, a refundable portion added by the OBBBA and effective for tax year 2025, the IRS confirmed.
The premium tax credit under the Affordable Care Act (ACA) was excluded from the proposal. The Treasury acknowledged that Congress built separate immigration restrictions into the ACA, Accounting Today reported.
DACA recipients, TPS holders, and asylum applicants could lose refund checks
The term “qualified alien” under PRWORA is narrowly defined. It covers lawful permanent residents, granted asylums, refugees, parolees admitted for at least one year, and certain battered noncitizens.
It excludes pending asylum applicants, Deferred Action for Childhood Arrivals (DACA) recipients, those with Temporary Protected Status (TPS), and many visa holders.
In 2023, there were 2.6 million asylum applicants, 650,000 people under TPS, and 600,000 DACA enrollees, The Hill reported, citing Pew Research Center data.
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Some noncitizens with Social Security numbers who are authorized to work in the U.S. could also lose access to these credits, Margot Crandall-Hollick of the Urban-Brookings Tax Policy Center told CNBC.
The number of undocumented workers filing federal returns has likely dropped since then due to the administration’s immigration crackdown.
The rule draft’s own estimate of 200,000 to 700,000 affected filers represents fewer than 3% of total claimants, The Hill noted.
From executive order to tax code enforcement
The proposed rule is the latest step in a policy chain that began with a February 2025 executive order directing federal agencies to identify programs providing financial benefits to undocumented immigrants.
Congress followed with the One Big Beautiful Bill Act, signed into law in July 2025, which narrowed eligibility for programs including Medicaid, Medicare, ACA premium tax credits, Supplemental Nutrition Assistance Program (SNAP), and the child tax credit, Mark Greenberg, an immigration expert at the Brookings Institution, noted in the CNBC piece.
The Treasury and IRS proposal now extends that effort into the tax code itself. The tax proposal fits within a broader push “to restrict immigrants’ access to public benefits,” Greenberg wrote in a July 24, 2026, analysis, CNBC reported.
A 45-day comment window before final rules are drafted
The proposed regulations are now in a public comment period. Written or electronic comments and requests to speak at the public hearing must be received by October 5, 2026, the Federal Register entry confirmed.
A public hearing is scheduled for Oct. 14, 2026, and if finalized this year, the regulations would apply to tax returns for the 2026 tax year, filed in early 2027. The Treasury and IRS will consider public comments before issuing final rules.
What ITIN filers face before the next filing season
The rule has not taken effect, but the refundable versus non-refundable distinction now has real weight. Filers using ITINs instead of Social Security numbers face a potential eligibility shift.
The rule must still survive its comment period, and its final form remains uncertain. Filers would need to attest to eligibility under penalty of perjury, but the IRS has not clarified whether additional verification methods will follow.
Data-sharing with the Department of Homeland Security remains a possibility. Mixed-status households face particular complexity, one spouse may qualify while the other does not, leaving filing implications for these families unresolved.
