The Treasury Department and the Internal Revenue Service have proposed new rules that could change how certain immigrants receive the refundable portion of several federal tax credits.
The proposal, announced August 19, 2026, seeks to clarify eligibility requirements under the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, or PRWORA.
The rules specifically address the refunded portion of certain refundable individual tax credits and could affect taxpayers who are not U.S. citizens or otherwise do not meet the law’s definition of a qualified alien.
Which tax credits are affected?
The proposal concerns several refundable tax credits, including:
- the Earned Income Tax Credit (EITC)
- the Additional Child Tax Credit (ACTC)
- the American Opportunity Tax Credit (AOTC)
- the Saver’s Match Credit
The Treasury Department says the proposed regulations would clarify that the refunded portions of these credits are federal public benefits covered by PRWORA.
This distinction is important because the proposal concerns the refundable portion of the credits.
In other words, the issue is not simply whether someone can calculate a tax credit on a return. The proposed rules address whether certain taxpayers can receive money back from the federal government when the refundable portion exceeds their tax liability.
Who could be affected?
The proposal is aimed at individuals classified under federal law as illegal aliens and other non-qualified aliens.
The Treasury Department says the regulations are intended to ensure that taxpayer-funded refundable benefits are provided only to people legally entitled to receive them.
However, taxpayers should not interpret the announcement as an immediate blanket cancellation of every tax credit for every immigrant.
The measure is a proposed regulation, and its application depends on the specific immigration status and tax credit involved.
When would the new rules apply?
The Treasury Department previously said final regulations were expected to apply beginning with tax year 2026.
The proposal therefore could become particularly relevant during the next tax filing cycle, depending on the final rules.
Taxpayers who are affected should pay close attention to the final regulation and IRS guidance before filing.