U.S. Treasury and IRS propose restricting tax credits for certain immigrants

The U.S. Department of the Treasury and the Internal Revenue Service (IRS) have proposed new regulations that would restrict access to the refundable portions of four major federal tax credits for certain noncitizens. The proposal seeks to reclassify the refundable portions of the Earned Income Tax Credit (EITC), the Child Tax Credit (CTC), the American Opportunity Tax Credit (AOTC), and the adoption tax credit as “federal public benefits” under the Personal Responsibility and Work Opportunity Reconciliation Act of 1996.

Under these rules, individuals who do not meet the legal definition of a “qualified alien” would be ineligible for these refunds. This includes groups such as DACA recipients, individuals with pending asylum applications, and those holding Temporary Protected Status. While these individuals could still use the nonrefundable portions of the credits to reduce their tax liability to zero, they would lose the cash refunds that often provide essential support to low-income households. Some estimates suggest the economic impact could reach up to $6,800 per family.

The proposal includes an exception for married couples filing jointly, where only one spouse must be a U.S. citizen, national, or qualified alien to receive the refundable portion. The Treasury and IRS have opened a 45-day public comment period, with a public hearing scheduled for October 14. The regulations would apply to tax years ending on or after the date the final rules are published.