Key Highlights

  • The Treasury Department and IRS proposed rules Wednesday restricting the refundable portion of four tax credits for certain immigrant groups, including the child tax Credit and Earned income tax credit.
  • The proposed rules classify the refundable portions of these credits as "federal public benefits," which would disqualify many noncitizens with valid work authorization from claiming them.
  • Tax experts estimate the change could affect hundreds of thousands to several million people, including asylum applicants, Temporary Protected Status holders, and DACA recipients.
  • Affected individuals would still be able to claim the nonrefundable portion of the credits, reducing their tax Liability to zero without receiving a refund.

Proposed Rules Redefine Tax Credits as Public Benefits

The Treasury Department and Internal Revenue Service proposed rules Wednesday that would restrict access to refundable tax credits for certain immigrant groups. The rules would classify the refundable portions of the adoption tax credit, child tax credit, American Opportunity tax credit, and earned income tax credit as "federal public benefits," a designation that would disqualify many noncitizens who hold valid Social Security numbers and work authorization from claiming them.

Affected groups would include individuals with pending asylum applications, Temporary Protected Status holders, and Deferred Action for Childhood Arrivals recipients, according to a tax policy researcher. Those individuals would still be able to claim the nonrefundable portion of the credits, which reduces tax liability to zero, but would no longer receive any portion as a cash refund.

Millions Could Be Affected, Experts Say

Tax experts estimate the proposed rules could affect hundreds of thousands to several million people, with the greatest impact falling on lower-income households that typically receive most of the credit value as a refund due to limited tax liability. In 2023, there were 2.6 million asylum applicants and roughly 650,000 Temporary Protected Status holders in the US, according to Pew Research Center, though those figures have likely declined since due to subsequent immigration enforcement actions.

Treasury Secretary Scott Bessent said in a statement that the proposed rules "protect the integrity of the tax system, and put Americans first." For married couples filing jointly, only one spouse would need to be a US citizen, national, or qualified alien for the household to receive the refundable portion of the credits.

Part of Broader Push to Restrict Immigrant Benefits

The proposal follows earlier legislation that narrowed eligibility for programs including Medicaid, Medicare, Affordable Care Act premium tax credits, and the Supplemental Nutrition Assistance Program, according to an immigration policy expert. The Supreme Court in June also allowed the administration to strip Temporary Protected Status from hundreds of thousands of Haitian and Syrian immigrants.

The proposed regulations are open for a 45-day public comment period, with a public hearing scheduled for October 14. If finalized, the rules would apply to tax years ending on or after the date of final publication, meaning they could affect returns filed for the 2026 tax year.