The U.S. Department of the Treasury and Internal Revenue Service (IRS) proposed rules Wednesday to restrict access to the refunded portion of certain federal tax credits for immigrants who do not meet federal eligibility requirements.
The agencies said in a Wednesday press release that the proposed regulations would clarify that the refunded portion of four refundable tax credits is a federal public benefit under the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, or PRWORA.
Treasury Secretary Scott Bessent said in the release, "Under President Trump, the days of illegal aliens collecting taxpayer-funded benefits are over. The federal law is clear, and Treasury is enforcing it." Bessent added that the proposed regulations would protect the integrity of the tax system and ensure taxpayer-funded benefits do not go to people barred from receiving them.
IRS Chief Executive Officer Frank J. Bisignano said in the release, "Refundable tax credits, like the Earned Income Tax Credit (EITC), were enacted to help low-to-middle income American families and workers receive critical financial support." He said the proposed regulations would ensure federally funded benefits are reserved for eligible taxpayers.
Which tax credits are affected?
The proposal applies to the adoption tax credit, child tax credit, American opportunity tax credit and earned income tax credit, or EITC.
Under PRWORA, U.S. citizens, U.S. nationals and qualified aliens are eligible for federal public benefits. The Treasury and IRS said the proposal follows legal analysis from the Department of Justice’s Office of Legal Counsel concluding that the refunded portions of the affected tax credits are federal public benefits.
Qualified aliens include lawful permanent residents, asylees, refugees and certain other groups defined under PRWORA.
The Treasury and IRS said the proposal is intended to strengthen enforcement of PRWORA and clarify who is legally eligible to receive the benefits.
To receive the refunded portion, a taxpayer would need to be a U.S. citizen, U.S. national or qualified alien when filing the federal income tax return first claiming the credit. The taxpayer would also have to declare eligibility under penalty of perjury.
For joint tax returns, only one spouse would need to meet the citizenship, nationality or qualified-alien requirement.
What the proposal means
The proposal applies only to the refunded portion of the affected credits. That is the amount of the refundable credit that exceeds a taxpayer’s federal income tax liability.
A taxpayer who does not qualify for the refunded portion could still claim any part of an affected credit for which they otherwise qualify to reduce their federal income tax liability.
Tax expert Margot Crandall-Hollick, a principal research associate at the Urban-Brookings Tax Policy Center, said the proposal could affect many noncitizens who have Social Security numbers and work authorization, according to CNBC.
The policy could have the greatest impact on lower-income households because they generally have smaller tax liabilities and therefore receive more of the tax break as a refund, Crandall-Hollick said.
A broader push on federal benefits
The proposal follows earlier moves by the Trump administration to restrict access to federal benefits for people who do not meet certain immigration requirements. Treasury Secretary Scott Bessent said in December that Treasury was working on regulations to restrict certain tax credits and other federal benefits for illegal and other non-qualified aliens.
The administration has also taken steps involving access to the U.S. financial system for noncitizens, while broader immigration proposals have focused on financial self-sufficiency and limiting the costs associated with immigrants receiving public benefits.
The Treasury and IRS said the proposed regulations would apply to tax years ending on or after the date the regulations are published as final regulations. The agencies will seek public comments and requests for a public hearing on the proposal.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors
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