The Treasury Department and the IRS on Wednesday proposed rules that would restrict access to refundable tax credits for certain immigrants, a move tax experts say could affect hundreds of thousands — if not millions — of lower-income households.
The proposed regulations clarify that the refundable portions of four tax credits — the adoption tax credit, child tax credit, American Opportunity tax credit and earned income tax credit — are “federal public benefits.” That classification would bar many noncitizens who have Social Security numbers and work authorization from claiming those refundable amounts.
The move is the latest effort by the Trump administration to use the financial safety net to enforce stricter immigration policy, according to tax experts.
Who would be affected?
The proposal would affect immigrants with pending asylum applications, Temporary Protected Status (TPS), and Deferred Action for Childhood Arrivals (DACA) recipients, among others, said Margot Crandall-Hollick, a principal research associate at the Urban-Brookings Tax Policy Center.
Figures suggest “several million” people could be impacted, she said. In 2023, there were 2.6 million asylum applicants, according to a Pew Research Center analysis published last year. Another 650,000 people had TPS, and 600,000 were enrolled in DACA, Pew found.
Those numbers have likely declined since then due to the Trump administration’s immigration crackdown, Pew noted. For example, the Supreme Court in June allowed the administration to strip hundreds of thousands of Haitian and Syrian immigrants of TPS protections.
How the credits work
Refundable tax credits allow households to receive some or all of the credit as a refund, even if they owe no tax. Under the proposal, affected immigrants could still claim the nonrefundable portion of the credits — meaning the credits could only reduce their tax liability to zero, not generate a refund.
The impact would be greatest on lower-income households, Crandall-Hollick said, because they typically have little or no tax liability and thus receive most of the benefit as a refund.
For married couples filing jointly, only one spouse would need to be a U.S. citizen, U.S. national, or “qualified alien” for the couple to receive the refundable portion.
Next steps
The proposal is part of a broader effort to restrict immigrants’ access to public benefits, according to Mark Greenberg, an immigration expert at the Brookings Institution. He noted that the “big beautiful bill” signed last year narrowed eligibility for programs like Medicaid, Medicare, ACA premium tax credits, the child tax credit, and SNAP.
Treasury Secretary Scott Bessent said in a press release that the rules “protect the integrity of the tax system, and put Americans first.”
The public has 45 days to comment on the proposal, with a hearing scheduled for Oct. 14. The Treasury and IRS will consider comments before issuing a final rule.
If finalized this year, the rules would apply to tax years ending on or after the date of final publication — meaning they would apply to 2026 tax returns filed next year.
Source: www.cnbc.com — https://www.cnbc.com/2026/08/19/treasury-irs-refundable-tax-credits-immigrants.html
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