The Treasury Department and the IRS proposed new rules on August 19 that could take away tax refund money from certain immigrants who work and pay taxes in the U.S., according to the agencies’ joint press release. If you or someone in your family could be affected, here’s what the rule says, who it applies to, and what to do while it’s still being decided.
What’s changing
According to the Treasury and IRS proposal, four tax credits are involved:
- The Earned Income Tax Credit (EITC)
- The Child Tax Credit
- The American Opportunity Tax Credit (for college costs)
- The Adoption Tax Credit
All four are “refundable.” That’s an important word to understand. A regular tax credit can only lower your tax bill down to zero; it can’t pay you extra. A refundable credit, on the other hand, is different. If the credit is worth more than what you owe in taxes, the IRS sends you the difference as cash.
The new rule wouldn’t take these credits away entirely, according to the agencies. It would take away the refund part. People affected could still use the credit to lower their tax bill to zero. They just wouldn’t get a check for anything beyond that.
Who this would affect
The rule applies to people who don’t meet a specific legal definition called a “qualified alien,” set by a 1996 welfare law. That group includes lawful permanent residents (green card holders), people granted asylum, refugees, and a few smaller categories.
According to tax researcher Margot Crandall-Hollick of the Urban-Brookings Tax Policy Center, the rule would not include other groups who are legally allowed to work in the U.S. and who currently pay taxes with a valid Social Security number:
- People with a pending asylum application
- People with Temporary Protected Status (TPS)
- DACA recipients (sometimes called “Dreamers”)
- Many visa holders
For a sense of scale, Pew Research Center found that in 2023, there were about 2.6 million pending asylum applicants, 650,000 people with TPS, and 600,000 DACA recipients in the U.S. Those numbers have likely dropped some since then, Pew noted, partly because the Supreme Court allowed the administration to end TPS protections for hundreds of thousands of Haitian and Syrian immigrants earlier this year.
Even so, according to Crandall-Hollick, the rule could touch several hundred thousand people, possibly more.
One detail worth knowing if you file jointly with a spouse: only one spouse needs to meet the “qualified alien” requirement for the household to still get the refund. That protects some mixed-status married couples, but it doesn’t help unmarried filers or couples where neither partner qualifies.
To enforce the new rule, the IRS said in its proposal that it plans to start asking everyone who claims these four credits, a group the agency puts at about 49 million families, according to an analysis by the Institute on Taxation and Economic Policy (ITEP), to state their citizenship status on their tax form. ITEP notes this would be the first time the IRS has asked filers to report citizenship status directly on a return.
Why the administration says it’s doing this
According to Treasury Secretary Scott Bessent, the change is basic enforcement of existing law, not a new policy. In the agencies’ press release, Bessent said the proposed rules “protect the integrity of the tax system, and put Americans first.”
The rule leans on a 1996 law that limits certain public benefits for immigrants who aren’t citizens, nationals, or “qualified aliens.” For decades, tax credits weren’t treated as falling under that law.
IRS Commissioner Frank Bisignano said in the same press release that the goal is to make sure these credits, which were originally designed to help lower- and middle-income working families, go only to people the law says are eligible. According to Bisignano, the administration estimates the change could save around $2.6 billion a year in federal spending.
Two credits were notably left out of the new rule. The Affordable Care Act’s premium tax credit wasn’t included, because Congress had already written immigration-status rules directly into that credit. The new “Trump Accounts” for children were also left out, since those are limited to U.S. citizens by design.
Why critics say it goes further than the law requires
Tax policy researchers and immigration analysts have pushed back on some points. Crandall-Hollick said the rule would hit lower-income households hardest, since they typically owe little in taxes and receive most of the credit’s value as a refund rather than as a reduction in what they owe.
ITEP raised a different argument. In their view, many affected workers also pay payroll taxes throughout the year, meaning the refund they’d lose often doesn’t actually exceed what they’ve already paid the federal government. This undercuts the administration’s rationale that a refund is “extra” money instead of money owed back to the taxpayer.
The analysis also estimates that the average affected family could lose more than $3,000 a year, though they noted that Treasury and the IRS have said they don’t have the data to precisely estimate how many taxpayers would be affected.
ITEP also said that Congress has had years of opportunities to write these same restrictions directly into the tax credits and has repeatedly declined to go this far, even while adding narrower Social Security number requirements to some credits in recent years.
There’s also a possible ripple effect at the state level. Many states calculate their own EITC as a percentage of the federal credit. If the federal refund shrinks for certain immigrant workers, ITEP said some state credits could shrink too.
This proposal doesn’t stand alone. It follows the “One Big Beautiful Bill,” signed into law last year. The Johns Hopkins Bloomberg School of Public Health had noted that this has narrowed eligibility for Medicaid, Medicare, ACA premium tax credits, the Child Tax Credit, and food assistance for some groups of immigrants.
What to do if you think this could affect you
- Don’t assume anything yet. The rule isn’t final, and the details, including exactly who qualifies and when it takes effect, could still change.
- Keep good records. Hold on to documents showing your income and your work authorization status. If the rule is finalized, you may need to show eligibility clearly when you file.
- Talk to a qualified tax professional before filing your 2026 return, especially if your household includes a mix of citizens and non-citizens, or if your immigration status falls into one of the affected categories.
- If you want to weigh in, use the comment period. According to the Treasury and IRS release, individuals and organizations can submit written comments before October 5; this is the formal window for public input before any final decision.
This is a fast-moving area of tax and immigration policy, and the rule could look different by the time it’s finalized. If it applies to your household, the safest move for now is to stay informed and get personalized guidance.
Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.
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