The Treasury Department and IRS proposed new rules Wednesday to block undocumented immigrants from claiming refundable tax credits, including the Earned Income Tax Credit and the Child Tax Credit.
The regulations seek to enforce the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, which restricted federal benefits for non-citizens. The move follows an executive order President Donald Trump issued in February 2025, directing agencies to prevent taxpayer-funded benefits from reaching those in the country illegally.
Trump’s order targets welfare exemptions
Trump’s directive, titled “Ending Taxpayer Subsidization of Open Borders,” criticized past administrations for allowing exemptions to the 1996 law for certain programs. The order described the restrictions as a measure to protect benefits for American citizens and reduce incentives for illegal immigration.
The proposed rules specify that refundable portions of tax credits count as federal public benefits under the 1996 law. A Justice Department legal analysis reached the same conclusion, the IRS stated. The changes would apply to four credits: the Adoption Tax Credit, Child Tax Credit, American Opportunity Tax Credit, and Earned Income Tax Credit.
Only U.S. citizens, nationals, or “qualified aliens”—a group that includes lawful permanent residents, refugees, and asylees—could receive the refundable portion under the proposal. Filers would need to declare eligibility under penalty of perjury. For joint returns, one spouse would need to meet the citizenship or residency requirement.
IRS frames rules as fraud prevention
IRS CEO Frank Bisignano said the regulations would ensure federally funded benefits remain reserved for eligible taxpayers. The agency called the proposal a crackdown on misuse of refundable credits by those barred from public benefits.
Related: Khaby Lame tests social media laws
The rules would not block all claims. Taxpayers who don’t qualify for the refundable portion could still use the credits to reduce their income tax liability. The refundable portion refers to the amount exceeding the taxpayer’s income tax bill for the year.
The regulations would apply to tax years ending after finalization. The Treasury and IRS are accepting public comments and hearing requests before adoption.
If implemented, the changes could reduce financial support for low-income families with undocumented members.
Opponents of the 1996 law have argued it creates unnecessary barriers for immigrants legally in the U.S. The new rules tighten enforcement of the existing framework without addressing those concerns.
The IRS has not estimated how many filers might lose access to refundable credits. The agency noted the rules follow long-standing federal policy rather than introducing new restrictions.
Some legal challenges may arise from the proposal. Similar measures have faced scrutiny over their impact on mixed-status families, as seen in cases involving life sentences upheld for acts tied to immigration enforcement.
