The Treasury Department and the Internal Revenue Service (IRS) on Wednesday proposed new regulations to restrict non-U.S. citizens from claiming several refundable tax credits. The proposal seeks to classify the refunded portion of these tax credits as "federal public benefits," which the administration stated is intended to prevent noncitizens from accessing taxpayer-funded support. Treasury Secretary Scott Bessent stated that the move is an enforcement of federal law to ensure that those barred from receiving benefits do not receive them.
The proposed restrictions would specifically apply to four major tax breaks: the adoption tax credit, the child tax credit, the American opportunity tax credit, and the earned income tax credit. Under the current system, some noncitizens who are authorized to work in the U.S. and possess Social Security numbers are eligible for these credits. The Treasury Department argued that these changes are necessary to address what it characterized as abuse within the tax refund system and to protect the integrity of the tax structure.
This proposal follows previous attempts by the Trump administration to use the tax system to manage unauthorized immigration. In February, a federal court ruled against a challenge to an IRS practice of sharing tax data with the Department of Homeland Security (DHS) to identify undocumented immigrants. Additionally, the Justice Department issued a memo last year arguing that the use of government benefits by non-U.S. citizens contradicts a 1996 budget law, a position that is currently being litigated in court.
If enacted, eligible individuals would see a direct reduction in their annual tax refunds. A person who previously qualified for the child tax credit or the earned income tax credit—programs designed to assist low-to-moderate-income families—would lose the refundable portion of those credits. The Treasury Department projects this change would reduce federal spending by between $700 million and $2.6 billion annually. For a household that relies on these credits to offset living expenses or education costs, the impact would be felt during the annual tax filing season.
The proposal sets a precedent for how the executive branch defines "federal public benefits" within the tax code. By reclassifying refundable credits, the administration is attempting to align tax policy with a 1996 law that restricts immigrant access to welfare. The next steps involve a public comment period for the proposed regulations before they can be finalized. The specific effective date for these changes has not yet been established and may depend on the outcome of ongoing legal challenges regarding the interpretation of federal budget laws.