The US Treasury Department and Internal Revenue Service (IRS) have proposed regulations clarifying eligibility for the refundable portions of four individual income tax credits under federal public-benefit rules.
The US Treasury and IRS issued the proposed regulations on 18 August 2026. The rules would apply the eligibility requirements under the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) to the refundable portions of the adoption tax credit, child tax credit, American opportunity tax credit, and earned income tax credit.
Background
PRWORA generally limits eligibility for certain federal public benefits to US citizens, US nationals, and qualified aliens. The proposed regulations clarify that the refunded portions of certain refundable individual income tax credits are federal public benefits subject to these eligibility restrictions.
The proposal follows an analysis by the Department of Justice’s Office of Legal Counsel concluding that the refunded portions of the affected tax credits fall within the definition of federal public benefits under PRWORA.
Proposed regulations
The proposed regulations would apply PRWORA’s eligibility requirements to four individual income tax credits: the adoption tax credit, child tax credit, American opportunity tax credit, and earned income tax credit.
To receive the refundable portion of an affected credit, a taxpayer would generally be required to:
- Be a US citizen, US national, or qualified alien on the date the federal income tax return first claiming the affected credit is filed. Qualified aliens include lawful permanent residents, asylees, refugees, and certain other individuals covered by PRWORA.
- Declare on the tax return, under penalty of perjury, that the taxpayer is eligible to receive the refundable portion of the credit.
- For a joint return, have at least one spouse who is a US citizen, US national, or qualified alien.
The proposed rules would apply only to the refundable portion of the affected credits. This is generally the amount by which the applicable refundable credits exceed the taxpayer’s federal income tax liability for the tax year.
Taxpayers who do not meet the eligibility requirements for the refundable portion could still claim any non-refundable portion of an affected credit for which they otherwise qualify, to the extent that it can be used to offset their federal income tax liability.
The proposed regulations would apply to tax years ending on or after the date on which the regulations are published as final.
The Treasury and IRS are seeking public comments on the proposed regulations and requests for a public hearing. The proposed regulations contain instructions for submitting comments.
