US proposal to restrict refundable tax credits for certainIm

The U.S. Treasury Department and the Internal Revenue Service (IRS) have proposed new regulations to restrict access to the refundable portions of four major federal tax credits: the child tax credit, the adoption tax credit, the American opportunity tax credit, and the earned income tax credit (EITC).

By classifying these refundable components as “federal public benefits,” the proposal would limit eligibility to U.S. citizens, U.S. nationals, or qualified aliens under the Personal Responsibility and Work Opportunity Reconciliation Act of 1996. This change would specifically impact undocumented immigrants, DACA recipients, asylum applicants, and individuals with Temporary Protected Status. While these groups could still use the nonrefundable portions to reduce tax liability to zero, they would no longer receive additional funds as refunds.

The administration estimates the move could save approximately $3 billion and impact nearly 1 million people, though some analysts suggest the impact on lower-income households could reach several million. A legal analysis by the Justice Department’s Office of Legal Counsel supports the classification of these refunds as public benefits. For joint tax returns, the proposal includes an exception allowing the refundable portion if at least one spouse meets the citizenship or qualified alien status requirements.