Treasury and IRS Propose Limits on Refundable Tax Credits for Eligible Immigrants

The Treasury Department and the Internal Revenue Service announced proposed regulations on Wednesday that would limit eligibility for refundable tax credits among specific immigrant groups.

Tax analysts warn that the change could disqualify hundreds of thousands, possibly millions, of low‑income individuals from these benefits, marking the latest effort by the Trump administration to embed stricter immigration controls within the tax system.

Refundable tax credits enable households to receive all or part of the credit as a direct payment.

The draft rules specify that the refundable portions of four credits — the adoption credit, child tax credit, American Opportunity credit, and earned income credit — qualify as federal public benefits.

This distinction would prevent many non‑citizens who hold Social Security numbers and have work authorization in the United States from claiming these tax breaks, according to Margot Crandall‑Hollick, a principal research associate at the Urban‑Brookings Tax Policy Center.

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The affected groups comprise individuals with pending asylum claims, those granted Temporary Protected Status, and Deferred Action for Childhood Arrivals (DACA) recipients, among others, she noted.

The proposed rules “protect the integrity of the tax system and put Americans first,” Treasury Secretary Scott Bessent said in a press release.

Crandall‑Hollick estimates that the rule could affect up to “several million people,” though the exact figure remains uncertain.

For instance, a 2023 Pew Research Center analysis reported 2.6 million asylum applicants, many of whom cite persecution or a well‑founded fear of returning to their home countries.

Additionally, 650,000 individuals held Temporary Protected Status that year, granting them temporary relief from removal due to conflict or disaster, while another 600,000 were enrolled in DACA, which is open to those who entered the United States unlawfully as children, according to Pew.

These figures have likely declined since then amid the Trump administration’s tighter immigration enforcement; notably, the Supreme Court recently upheld the administration’s move to revoke TPS protections for hundreds of thousands of Haitian and Syrian immigrants.

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The tax proposal aligns with a broader initiative “to restrict immigrants’ access to public benefits,” noted Mark Greenberg, an immigration scholar at the Brookings Institution, in a July analysis.

The “big beautiful bill” that President Donald Trump enacted last year “narrowed eligibility” for programs such as Medicaid, Medicare, Affordable Care Act premium tax credits, the child tax credit, and the Supplemental Nutrition Assistance Program, Greenberg observed.

If finalized, the Treasury and IRS proposal would designate only the refundable portions of the adoption credit, child tax credit, American Opportunity credit, and earned income credit as federal public benefits, per a joint press release from the agencies.

Consequently, the targeted immigrant groups could still claim the nonrefundable portion of these credits, meaning the benefit would only offset their tax liability to zero rather than produce a cash refund.

The policy would disproportionately affect lower‑income households, Crandall‑Hollick said, noting that such households typically have limited tax liability and therefore rely heavily on refundable portions of credits.

Moreover, for married couples filing jointly, only one spouse needs to be a U.S. citizen, national, or “qualified alien” to qualify for the refundable portion of these credits.

A 45‑day public comment period follows the proposal, with a public hearing slated for October 14; the Treasury and IRS will review feedback before finalizing the rule.

The regulations would take effect for tax years ending on or after their publication as final rules, meaning that if they are finalized this year, they would apply to 2026 tax returns filed in 2027.

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