The Treasury Department and the IRS unveiled a proposed regulation on August 19 that would strip broad categories of lawfully present immigrants — not merely people without legal status — of the refundable share of four widely claimed tax credits. Officials tied the move to a decades-old welfare law and put the government's own projected savings at $700 million to $2.6 billion a year, though at least one higher, unverified estimate of roughly $3 billion circulated the same day.
Four credits, a citizenship test at filing time
The proposal, issued jointly by Treasury and the IRS, extends restrictions from the 1996 Personal Responsibility and Work Opportunity Reconciliation Act to the refundable portion of the earned income tax credit, the child tax credit, the American Opportunity education credit and the adoption credit. Under the plan, only U.S. citizens, U.S. nationals or someone who meets the law's narrower "qualified alien" definition — lawful permanent residents, asylees and refugees among them — could collect the part of those credits that exceeds what a filer actually owes in tax. Filers would have to certify their status under penalty of perjury on a new form, and on joint returns, just one spouse would need to clear the bar.
Treasury Secretary Scott Bessent described the change as enforcement rather than new policy: "Under President Trump, the days of illegal aliens collecting taxpayer-funded benefits are over. The federal law is clear, and Treasury is enforcing it." The proposal builds on a February 2025 executive order and a Justice Department legal opinion from last November that first concluded several credits' refundable portions count as federal public benefits.
The credit list has shifted, but not the way it first looked
Treasury's plan has changed shape twice since it was first floated. Its November 20, 2025 release named four credits headed for restriction: the earned income credit, the Additional Child Tax Credit, the American Opportunity credit and the Saver's Match retirement credit — with no mention of the Premium Tax Credit for health coverage, despite a Justice Department opinion issued the day before that had separately concluded the health credit qualified too. Wednesday's formal proposal again lists four credits, but a different four: it drops the Saver's Match (Treasury says a separate rule on that credit is coming later) and adds the adoption credit, which only became partly refundable under last year's tax law and so had never before triggered this kind of review. The Premium Tax Credit was excluded for good, on the reasoning that newer, credit-specific health-coverage statutes override the 1996 law.
Who actually loses eligibility
Even though Treasury's messaging centers on unauthorized immigration, the rule's reach runs well past that population. Deferred Action for Childhood Arrivals recipients — 495,320 people nationwide as of the end of 2025 — hold valid work permits and Social Security numbers but don't meet the law's "qualified alien" test, so DACA status alone would disqualify them from refunds despite years of paying into the system.
Temporary Protected Status holders face the same exclusion, though the current shape of that population looks different than it did even a year ago. TPS terminations under this administration have hit more than a million people, with Venezuela the single largest group affected — over 600,000 Venezuelans across two now-terminated designations, a population with deep ties to South Florida communities like Doral. A smaller group of Venezuelans who arrived before August 2023 keep their status only until it lapses on a fixed date this October; that's a scheduled sunset, not an open legal fight. The roughly 273,000 people who still hold active TPS today are almost entirely from El Salvador and Ukraine, with small numbers from Sudan and Lebanon. Pending asylum seekers, workers on H-1B and similar visas, and international students with work authorization could also lose refund eligibility, alongside some households where children are U.S. citizens but a parent's status disqualifies the family from a full refund.
Pushback: this belongs to Congress, critics say
The Tax Law Center at NYU School of Law called the move an unauthorized rewrite of settled practice. Policy Director Brandon DeBot said "this would wrongly deny tax credits for hundreds of thousands of taxpayers," adding that the change would reach people living in the country lawfully — those with DACA or TPS among them — plus households where children hold citizenship even though a parent doesn't. The center argues only Congress can narrow eligibility for these credits, not an agency reinterpretation of a 1996 statute.
How many people ultimately lose access depends on whom you ask. Treasury and the IRS have acknowledged they lack the data to pin the number down precisely; outside estimates run from the low hundreds of thousands into the millions once mixed-status households and pending asylum cases are counted. Separate Social Security Administration data cited in coverage of the proposal suggests a narrower band — roughly 200,000 to 700,000 taxpayers, under 3% of those who claim the credit.
Carl Davis, research director at the Institute on Taxation and Economic Policy, told the Associated Press in November that a legislative version of this change would likely have struggled in Congress: "The American people are broadly sympathetic to the Dreamers and DACA recipients. Targeting them in this roundabout way, that's not a policy change that would've had majority support in Congress" — a comment widely read as explaining why the administration pursued a regulatory route instead.
What happens next
Nothing in the rule is final yet. The public has a window to submit written comments or request a hearing before any version takes effect, and the restrictions would only apply to tax years ending after a final rule is published — meaning the filing season now underway is not immediately affected. The proposal also marks the first time the IRS would ask everyone claiming these credits to affirmatively report their citizenship or immigration status on a return. It follows last year's broader tax law, which already tightened Social Security number requirements for the child tax credit and the American Opportunity credit by requiring the parent, not just the child, to hold a valid number.
