IRS Regs Would Block Certain Immigrants From Claiming Refundable Tax Credits

Proposed rules issued by the Treasury Department and the IRS on Wednesday would restrict undocumented immigrants’ access to refundable tax credits, including the Earned Income Tax Credit and the Child Tax Credit.

The proposed regulations are intended to strengthen enforcement of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, a law passed by Congress under the Clinton administration that implemented major changes to U.S. social welfare policy by giving states greater control over administering social welfare programs and tightening welfare recipient requirements.

In an executive order, “Ending Taxpayer Subsidization of Open Borders,” that he issued in February 2025, President Donald Trump said his administration would “uphold the rule of law, defend against the waste of hard-earned taxpayer resources, and protect benefits for American citizens in need, including individuals with disabilities and veterans.”

Trump’s order cited the PRWORA as barring non-citizens from participating in federally funded benefits programs, and he criticized past administrations for providing exemptions to that law for certain “life or safety” programs—including those now being targeted for new restrictions.

The order mandated that federal agencies restrict access to benefits programs for undocumented immigrants, in part to “prevent taxpayer resources from acting as a magnet and fueling illegal immigration to the United States.”

The proposed rules from the Treasury Department and the IRS clarify that the refunded portion of certain refundable individual income tax credits are federal public benefits and establish clear rules governing who’s legally eligible to receive them.

“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,” IRS CEO Frank Bisignano said in a statement on Aug. 19. “Today’s proposed regulations ensure that federally funded benefits are reserved for eligible taxpayers and protect the integrity of every taxpayer dollar.”

In a statement, the IRS said Wednesday’s proposal “cracks down on the abuse of taxpayer-funded refundable individual income tax credits and ensures that illegal aliens and other non-qualified aliens barred by federal law do not receive public benefits, which they are ineligible to receive.”

Under PRWORA, only U.S. citizens, U.S. nationals, and qualified aliens are eligible to receive federal public benefits. The proposal follows a legal analysis by the Justice Department’s Office of Legal Counsel that concluded the refunded portions of the affected credits are federal public benefits, according to the IRS.

The proposed regulations apply PRWORA to four individual income tax credits: the Adoption Tax Credit, the Child Tax Credit, the American Opportunity Tax Credit, and the Earned Income Tax Credit.

To receive the refunded portion of an affected credit:

The taxpayer must be a U.S. citizen, U.S. national, or qualified alien on the date the taxpayer files the federal income tax return first claiming the affected credit. Qualified aliens include lawful permanent residents, asylees, refugees, and certain other groups defined or specified under PRWORA.
The taxpayer must declare on the tax return, under penalty of perjury, that they’re eligible to receive the refunded portion of the credit.
For a joint return, only one spouse must be a U.S. citizen, U.S. national, or qualified alien.

Only the refunded portion of the affected credits is treated as a federal public benefit. The refunded portion is the aggregate amount of the affected refundable credits that exceeds the income tax liability imposed for the tax year. A taxpayer who isn’t qualified to receive the refunded portion can still claim any portion of an affected credit for which the taxpayer otherwise qualifies that generally offsets income tax liability, according to the IRS.

The proposed regulations would apply to tax years ending on or after the date the regulations are published as final regulations.

“Under President Trump, the days of illegal aliens collecting taxpayer-funded benefits are over. The federal law is clear, and Treasury is enforcing it,” Treasury Secretary Scott Bessent said in a statement. “American taxpayers should not be forced to foot the bill for benefits going to those who are barred by law from receiving them. These proposed regulations end the abuse, protect the integrity of the tax system, and put Americans first.”

The Treasury Department and the IRS are taking public comments and requests for a public hearing on all aspects of the proposed regulations. Complete instructions for submitting comments are included in the proposed regulations.

Tribune News Services contributed to this article.