The U.S. Department of the Treasury and the Internal Revenue Service have proposed new regulations to block illegal aliens from receiving the refundable portions of several federal individual income tax credits.
The proposal, unveiled on August 19, 2026, would clarify that the refunded portions of certain individual income tax credits qualify as federal public benefits under the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, according to a Treasury announcement.
Under that law, only U.S. citizens, U.S. nationals, and qualified aliens are permitted to receive federal public benefits. Qualified aliens include lawful permanent residents, asylees, refugees, and certain other categories defined under the statute.
“Under President Trump, the days of illegal aliens collecting taxpayer-funded benefits are over. The federal law is clear, and Treasury is enforcing it,” said Treasury Secretary Scott Bessent. “American taxpayers should not be forced to foot the bill for benefits going to those who are barred by law from receiving them. These proposed regulations end the abuse, protect the integrity of the tax system, and put Americans first.”
The proposed regulations follow a legal analysis by the Department of Justice’s Office of Legal Counsel, which concluded that the refunded portions of the affected credits constitute federal public benefits.
Affected Credits
The rules would apply to four individual income tax credits: the adoption tax credit, the child tax credit, the American opportunity tax credit, and the earned income tax credit.
To claim the refunded portion of any affected credit, a taxpayer would have to be a U.S. citizen, U.S. national, or qualified alien as of the date the return first claiming the credit is filed. The taxpayer would also be required to declare eligibility under penalty of perjury on the return. On joint returns, only one spouse would need to meet the eligibility standard.
Only the refunded portion of the affected credits would be treated as a federal public benefit. That portion is defined as the total of the affected refundable credits that exceeds the taxpayer’s income tax liability for the year. A taxpayer who does not qualify for the refunded portion may still claim any portion of the credit that offsets income tax liability.
“Refundable tax credits, like the Earned Income Tax Credit (EITC), were enacted to help low-to-middle-income American families and workers receive critical financial support,” said IRS Chief Executive Officer Frank J. Bisignano. “Today’s proposed regulations ensure that federally funded benefits are reserved for eligible taxpayers and protect the integrity of every taxpayer dollar.”
The rules would take effect for tax years ending on or after the date the regulations are published in final form. The Treasury and the IRS said they will accept public comments and requests for a public hearing, with instructions included in the proposed regulations.
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