The Treasury Department and the Internal Revenue Service unveiled a proposed regulation this week that would limit certain immigrants’ ability to collect refunds tied to major tax credits, a change that could shave benefits from low-income households and affect potentially millions. The move is the latest federal effort to narrow immigrants’ access to government programs and could reshape how working noncitizens file taxes next year.
The proposal would classify the refundable portion of four widely used credits as federal public benefits, meaning some noncitizens who currently use Social Security numbers and work authorization to claim refunds could be blocked from receiving those payments.
Which credits are targeted
The rule would treat the refundable parts of these credits as public benefits:
- Child Tax Credit
- Earned Income Tax Credit (EITC)
- American Opportunity Tax Credit (education-related)
- Adoption Tax Credit (refundable portion)
Under the proposal, noncitizen taxpayers could still use the nonrefundable portion of these credits to reduce their tax bills down to zero, but they would not be eligible to receive a refund above and beyond their tax liability.
For many low-income families, that distinction matters greatly. Refundable credits are designed to deliver cash benefits to households with little or no tax liability; removing refunds would sharply reduce the after-tax income of people who rely on those payments.
Who may lose access
Experts say the rule could reach a broad swath of people who currently have legal work authorization. That includes individuals with pending asylum claims, people protected under Temporary Protected Status (TPS), and recipients of Deferred Action for Childhood Arrivals (DACA), among others, according to Margot Crandall-Hollick of the Urban–Brookings Tax Policy Center.
Crandall-Hollick has estimated the change could affect “several million” people. To give scale, a 2023 Pew Research analysis found roughly 2.6 million people had pending asylum cases that year, about 650,000 were on TPS, and nearly 600,000 were enrolled in DACA. Those totals may have shifted since then amid recent enforcement actions and court decisions that have changed eligibility for some protections.
Brookings’ Mark Greenberg framed the proposal as part of a broader policy trend. He noted that recent federal legislation and administrative moves have narrowed immigrant eligibility for programs such as Medicaid and premium tax credits under the Affordable Care Act, and that this draft regulation continues that pattern by focusing on tax-related benefits.
Practical effects and a filing nuance
The rule would hit lower-income households hardest because they typically rely on refunds rather than reductions in tax liability. In many cases, the refundable portion of a credit is the only way those households receive meaningful assistance.
There is one important complication for married couples filing jointly: if one spouse is a U.S. citizen, U.S. national or otherwise qualifies as an eligible immigrant under the regulation, the couple could still receive the refundable portion on a joint return. That means the change would not automatically bar all mixed-status households from receiving refunds.
- Who could lose refunds: asylum applicants, TPS holders, many DACA recipients and other noncitizens with work authorization.
- What remains available: the nonrefundable portion of the four credits, which can only reduce tax owed to zero.
- Main impact: lower-income taxpayers who rely on refund checks would see the biggest income loss.
Process and timing
The agencies have opened a public comment window lasting 45 days and will hold a hearing on Oct. 14 to gather testimony and feedback before finalizing any regulation. Treasury and the IRS say the rule, if finalized, would apply to tax years that end on or after the date the final rule is issued. Practically, that means a rule finalized this year could affect returns filed for 2026 income.
Treasury Secretary Scott Bessent described the proposal as a measure to preserve the tax system and prioritize U.S. taxpayers, while advocates and tax analysts warn it could withdraw vital financial support from working people who already face economic strain.
As the comment period proceeds, the final shape of the regulation—and its real-world consequences—will depend on public input and any changes the agencies make in response. For households and tax preparers, the proposal signals a potential shift in who qualifies for cash refunds from the tax code, with immediate implications for next year’s filing season.
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