FAQ: The Federal Government Wants to Deny Refundable Tax Credits to Many Immigrants

On August 19, the Department of the Treasury and the Internal Revenue Service posted a proposed rule that would radically change who can receive several vital tax credits. Hundreds of thousands of people could see their tax refunds vanish if their eligibility for refundable tax credits is eliminated. The public will have until early October to comment on this proposed rule.

The proposal would deny critical refundable tax credits to many immigrants who currently work, pay taxes, and meet all existing tax-law eligibility requirements but who do not fall within a narrow subset of immigrants. Lawfully present immigrants, including people with Temporary Protected Status (TPS), Deferred Action for Childhood Arrivals (DACA), asylum applicants with work authorization, and others, would be harmed. Families, including those with U.S. citizen children, could lose thousands of dollars each year.

This FAQ reviews current law regarding the impacted tax credits, what the administration is proposing, who will be harmed, how the administration proposes to verify eligibility, and how the public can engage during this process.

What Are Refundable Tax Credits and Can Immigrants Get Them?

Refundable tax credits allow taxpayers to receive refunds higher than the amount they owed in income tax. For example, a low-income parent with two children who owes only a small amount of federal income tax may still receive a refund of up to $3,400 through the refundable Additional Child Tax Credit.

The rules for immigrants’ tax credit eligibility are set by federal tax laws. Taxpayers must meet the eligibility requirements established by Congress for each specific credit, including income, work, and Social Security number requirements where applicable. For example, in 2025, Congress enacted new, harmful tax credit restrictions for people without work-authorized Social Security numbers.

What Are Treasury and IRS Proposing?

The agencies are trying to use a sweeping new interpretation of the 1996 Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) to restrict tax credits for many lawfully present immigrants. That law made certain “federal public benefits” available only to U.S. citizens and certain categories of “qualified” immigrants, such as lawful permanent residents, refugees, and asylees. Many immigrants who are lawfully present and authorized to work do not fall within PRWORA’s “qualified” immigrant definition.

No federal agency has considered tax credits to be federal public benefits available only to qualified immigrants under PRWORA. In fact, Congress addressed tax credit eligibility in a separate section of that law – making the EITC available to a broader group of noncitizens who have a valid Social Security number.

This proposal follows notices by five federal agencies that also attempted to expand PRWORA’s restrictions by adding a range of programs to the definition of “federal public benefit.” Several state attorneys general sued, and most of these notices are now blocked by court order in those states.

Which Tax Credits Would the Proposed Rule Restrict and For Whom?

Treasury and IRS propose to treat the refundable portions of several tax credits as federal public benefits under PRWORA, thereby excluding immigrants who are lawfully present but not defined as “qualified” under the 1996 law. This means that, unlike other taxpayers, the affected immigrants could not receive a refund greater than their tax liability.

The tax credits that would no longer be available to immigrants who are not “qualified” are:

• The Earned Income Tax Credit, which provides a refundable tax credit that increases in value relative to wages and family size.
• The Additional Child Tax Credit, which is the refundable portion of the Child Tax Credit and helps low-income families with children.
• The American Opportunity Tax Credit, which helps students and families offset higher education costs.
• The Adoption Tax Credit, which helps families offset the cost of going through the process of adopting a child.

This proposed rule mentions that the IRS will separately propose regulations in the future restricting the Saver’s Match Credit, which matches certain retirement contributions.

The lawfully present immigrants who would lose access to these credits include:

• DACA recipients
• People granted Temporary Protected Status
• Asylum applicants with work authorization
• People granted parole for less than a year
• People who have been granted a U or T visa
• Student, employment, and other nonimmigrant visa holders
• Other people with work authorization who are not “qualified immigrants” under PRWORA

Citizens, green card holders, refugees, people granted asylum or withholding of removal, certain domestic violence survivors, Cuban and Haitian entrants, certain trafficking survivors, and people residing under the Compacts of Free Association would remain eligible. Taxpayers would need to have one of these qualified statuses on the day they file their annual tax return to be eligible. For married couples filing joint tax returns, as long as one person is a U.S. citizen or “qualified” immigrant, the family would be eligible. However, for couples with U.S. citizen children where neither parent is a U.S. citizen or a “qualified” immigrant, the entire family would be excluded.

Undocumented immigrant taxpayers were already excluded by Congress from the Earned Income Tax Credit, Child Tax Credit, and American Opportunity Tax Credit. They would only be newly excluded from the Adoption Tax Credit.

How Would Families Be Required to Prove Eligibility?

While Congress has included Social Security number requirements for certain credits, the IRS has never required tax filers to attest to their immigration status on a tax form. Unlike programs like Medicaid and SNAP, there is no system within the IRS to verify a taxpayer’s immigration status.

Under the proposed rule, taxpayers seeking the refundable portion of the Earned Income Tax Credit, Additional Child Tax Credit, American Opportunity Tax Credit, or Adoption Tax Credit would be required to attest under penalty of perjury that they are a U.S. citizen, U.S. national, or a “qualified” immigrant under PRWORA. The IRS plans to create a new certification process requiring taxpayers to make this declaration in connection with their tax return. A false declaration could expose a taxpayer to significant civil or criminal penalties.

For many immigrants and the organizations that assist them with tax preparation, determining whether someone is a “qualified” immigrant may not be straightforward. The category includes some immigration statuses but excludes many others, and eligibility can depend on highly technical provisions of immigration law that even tax preparation experts cannot be easily trained to parse. Some taxpayers may incorrectly conclude that they are eligible, while others may incorrectly decide they are not. Some tax filers may mistakenly declare that they are qualified immigrants, exposing themselves to criminal penalties, while some eligible individuals may choose to not claim these tax credits due to fear and confusion.

How Would Families and Communities Be Harmed?

The rule could harm up to 700,000 taxpayers, according to the proposal’s estimates. For example, this could affect more than 300,000 people living in households with a DACA recipient, including 188,000 U.S. citizen children. Because as many as 30 states tie their own EITCs to the federal credit’s eligibility standards, families in these states could lose even more. These estimates do not include the number of taxpayers who remain eligible but choose not to claim the tax credits because they are confused or afraid to do so.

Federal tax credits have been critical, lifting millions of people out of poverty, with expanded CTC and EITC reducing child poverty by three percentage points in 2021. The EITC rewards and induces employment while improving maternal health. The refundable portion of the American Opportunity Tax Credit particularly helps lower- and middle-income families who might not otherwise be able to afford college. The IRS estimates that between $700 million and $2.6 billion could be taken out of families’ pockets under its proposal.

The impact would extend beyond individual households. Families typically spend tax refunds quickly in their local communities, supporting businesses and local economies. The CTC can generate multiple times its value in local spending. Removing these resources would reduce economic activity in communities across the country.

What Can We Do?

The public can submit comments on this proposed rule by October 4, 2026, at www.regulations.gov. As detailed in the proposal, Treasury and the IRS will also hold a public hearing on October 14, where concerned members of the public can speak out in opposition to this harmful rule. NILC strongly urges anyone who can speak to the harm of this proposal to do so.

Comments can help document the real-world consequences of denying tax credits to lawfully present immigrants, including increased financial hardship, reduced economic activity, administrative and compliance burdens, and confusion among families who have long relied on these credits. Treasury and the IRS are required to consider those concerns as they evaluate whether to move forward with a final rule.

NILC will continue to monitor this proposal as it moves forward.