The US Treasury and IRS have proposed rules that would restrict the refundable portions of the EITC, CTC, AOTC and adoption tax credit for individuals who do not meet federal immigration-status requirements, with the rules generally applying from tax years beginning on or after 1 January 2026.
The US Department of the Treasury and the Internal Revenue Service (IRS) proposed regulations (REG-119882-25) on 20 August 2026 that would extend federal immigration-status restrictions to the refundable portions of four tax credits. The proposed rules would generally apply to taxable years beginning on or after 1 January 2026 under the Personal Responsibility and Work Opportunity Reconciliation Act of 1996.
The proposal seeks to classify the refunded portion of the Adoption Tax Credit, Child Tax Credit, American Opportunity Tax Credit, and Earned Income Credit as “Federal public benefits.” Under this designation, and under the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA), individuals who are not qualified aliens would be prohibited from receiving these payments.
The proposed regulations designate the refunded portion of four specific tax credits as “Federal public benefits”:
- The earned income tax credit (EITC): A fully refundable credit designed to encourage work. For tax year 2025, maximum benefits range from USD 649 (no children) to USD 8,046 (three or more qualifying children). The OLC categorised EITC refunds as welfare or similar benefits.
- The child tax credit (CTC) & additional child tax credit (ACTC): For tax year 2025, the CTC is up to USD 2,200 per qualifying child. Taxpayers with insufficient tax liability claim the refundable portion as the ACTC, which is capped at USD 1,700 per child.
- The American opportunity tax credit (AOTC): A higher-education credit of up to USD 2,500 per student, of which 40% (up to USD 1,000) is refundable. The OLC classified this portion as a postsecondary education benefit.
- The adoption tax credit: Under section 23(a)(4), up to USD 5,000 of this credit is refundable starting in 2025. Although the OLC did not explicitly address this credit, the Treasury included it because the Department of Health and Human Services (HHS) has long classified federal adoption assistance programs as public benefits.
Exclusions from the proposed rules
- Premium tax credit (PTC): Although classified as a public benefit, the PTC is excluded because later laws, including the ACA and OBBBA, established more specific immigration rules that supersede PRWORA.
- Saver’s match: The Treasury and IRS will address this credit in separate proposed regulations before it takes effect in 2027.
- Trump accounts contribution pilot program: OBBBA already restricts the program to US citizens, overriding PRWORA restrictions.
Defining the “refunded portion”
The proposed immigration-status restrictions apply only to the refunded portion of affected credits, not the entire credit. Non-qualified aliens may still use the credits to reduce their tax liability to zero but cannot receive any excess as a cash refund, carryover, or offset. Where multiple affected credits are claimed, their amounts are combined to determine the restricted overpayment.
The “first claim” timing rule
The regulations determine eligibility based on a taxpayer’s immigration status on the date they first claim the credit for a taxable year, whether through an original, late, or amended return. Thus, a taxpayer who was undocumented when first claiming the credit remains ineligible even if their status later changes, while a taxpayer who obtains qualified status before making their first claim may qualify.
Public comments and hearing information
The IRS is seeking public comments on the proposed eligibility rules, with written comments and requests to speak due by 5 October 2026. A public hearing is scheduled for 14 October 2026 at 10:00 AM ET, subject to cancellation if no speaking requests are received. Requests to attend the hearing must be submitted by 5:00 PM ET on 9 October 2026.
