IRS proposes restricting refundable tax credits for certain immigrants

The Treasury Department and the Internal Revenue Service (IRS) have unveiled proposed regulations that would restrict access to the refundable portions of four major tax credits for certain noncitizen immigrants. The affected credits include the Earned Income Tax Credit, the Child Tax Credit, the Adoption Tax Credit, and the American Opportunity Tax Credit.

Under the proposal, these refundable portions would be classified as federal public benefits. This classification would make them unavailable to many immigrants, including those with pending asylum applications, individuals with Temporary Protected Status, and DACA recipients. While these individuals could still claim the nonrefundable portions of the credits to offset existing tax liabilities, they would no longer receive additional funds as refunds.

The move aims to clarify and apply the 1996 Personal Responsibility and Work Opportunity Reconciliation Act, which limits federal public benefits to U.S. citizens, U.S. nationals, and qualified aliens. A legal analysis by the Justice Department’s Office of Legal Counsel supports the conclusion that the refunded portions of these credits constitute federal public benefits.

Tax policy analysts suggest the change could affect several million people, with the most significant impact falling on lower-income households. For joint tax returns, the regulations include an exception allowing the refundable portion if at least one spouse meets the citizenship or qualified alien status requirements.