Treasury Proposes Blocking Refundable Tax Credits for Illegal Immigrants

The United States Department of the Treasury and the Internal Revenue Service proposed regulations on August 19, 2026, to prevent illegal immigrants from receiving the refundable portions of four individual income tax credits: the Child Tax Credit, the Earned Income Tax Credit, the American Opportunity Tax Credit, and the adoption tax credit.

Under the proposal, these refunds are classified as federal public benefits under the Personal Responsibility and Work Opportunity Reconciliation Act of 1996. This classification restricts eligibility to U.S. citizens, nationals, and qualified aliens, such as refugees, asylees, and lawful permanent residents. The rules would disqualify between 200,000 and 700,000 noncitizens, including those with Temporary Protected Status or Deferred Action for Childhood Arrivals (DACA). While ineligible individuals would be barred from receiving refunds, they may still use the credits to offset their federal income tax liabilities.

The administration estimates the policy could save the government between $700 million and $2.6 billion in 2026. The move follows a February 2025 executive order by President Donald Trump and relies on a Department of Justice reinterpretation of the 1996 budget law, a guidance that is currently under litigation. The proposed regulations are not yet final and will be subject to public comment before being applied to tax years ending on or after their publication date.