August 31, 2026
The Treasury Department and IRS have proposed regulations that would limit access to the refundable portion of four federal tax credits for certain noncitizens. The rules would apply the eligibility requirements under the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) to the Earned Income Tax Credit, Child Tax Credit, American Opportunity Tax Credit, and Adoption Tax Credit.
The proposal is not yet final and does not change current filing requirements. If finalized, most taxpayers would not be affected. U.S. citizens, U.S. nationals, and certain legally present noncitizens would generally remain eligible for the refundable portion of the highlighted credits. To help clients, prospects, and others, Wilson Lewis has summarized the key details below.
The proposal applies to the refundable portion of four individual income tax credits:
These are widely used credits. It’s estimated that approximately 49 million individual income tax returns will claim at least one of them for tax year 2026. Of those, about 24 million are expected to claim an amount that would be considered a federal public benefit under the proposed rules.
That does not mean 24 million taxpayers would lose access to a credit. Treasury and the IRS estimate that roughly 200,000 to 700,000 of those taxpayers could be found ineligible for the refundable amount because they do not meet the proposed immigration-status requirements. The agencies note that they do not have direct data that would allow them to determine the number precisely.
The proposed regulations are intended to apply the eligibility rules under PRWORA to these four refundable tax credits. Under that law, federal public benefits generally may be provided to U.S. citizens, U.S. nationals, and certain individuals classified as qualified aliens.
Qualified aliens can include lawful permanent residents, refugees, asylum-seekers, and certain other groups defined under federal law. Under the proposal, a taxpayer would need to meet one of the eligible status categories on the date the taxpayer first files a return claiming the affected credit for that tax year.
For married couples filing jointly, only one spouse would need to be a U.S. citizen, U.S. national, or qualified alien to satisfy the proposed requirement. Taxpayers receiving a refundable amount also would be required to certify eligibility on the return under penalty of perjury.
Most taxpayers who currently claim these credits are unlikely to see a change because of these regulations; however, if finalized, there is expected to be an outsized effect in immigrant communities.
The proposed rules would not necessarily prevent an affected taxpayer from using one of these credits altogether. Instead, they focus on the portion of the affected credits that exceeds the taxpayer’s federal income tax liability.
For example, assume a taxpayer otherwise qualifies for $2,500 in affected credits and has $1,000 of income tax liability. The first $1,000 could still reduce the taxpayer’s tax liability. The remaining $1,500 would be the refundable portion subject to the proposed immigration-status requirements.
The proposed rules stipulate that the refundable amount should be treated as a federal public benefit under PRWORA. A taxpayer who does not meet the applicable status requirement could therefore still be eligible to use a portion of an affected credit to offset income tax liability, even though the taxpayer could not receive the remaining amount as a refund.
For most taxpayers, no action is necessary based solely on the proposed regulations. U.S. citizens, nationals, and individuals who meet the federal definition of a qualified alien would continue to be eligible for the refundable portion of the affected credits, assuming they meet the other requirements for the credit.
The proposal may have broader implications if it is finalized. Some states tie tax rules or state credits to federal tax law, so changes at the federal level could also require states to determine how the new eligibility rules affect the state tax code. In communities where more taxpayers are affected, reduced federal or state refunds could also mean less money flowing into local businesses during refund season. Taxpayers and business owners should continue to watch both federal and state developments as the proposal moves forward.
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The regulations are still proposed. They would apply to tax years ending on or after the date final regulations are published. If finalized, the changes are expected to impact tax returns filed for the 2026 tax year. If you have questions about the information outlined above or need assistance with another tax or accounting issue, Wilson Lewis can help. For additional information call 770-476-1004 or click here to contact us. We look forward to speaking with you shortly.