Could your immigration status affect how much of a tax refund you can receive?
Right now, nothing has changed. But the Treasury Department and IRS have proposed a rule that could limit the refundable portion of several major tax credits for some noncitizens.
The proposal involves the Earned Income Tax Credit, Child Tax Credit, American Opportunity Tax Credit, and Adoption Tax Credit. If finalized, it could affect hundreds of thousands of taxpayers.
Here’s what’s actually being proposed, who could be affected, and what taxpayers need to know while the rule is still pending.
What Is the IRS Proposing?
In August 2026, the Treasury Department and IRS proposed regulations that would apply provisions of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, commonly called PRWORA, to certain refundable tax credits.
Under PRWORA, eligibility for many federal public benefits depends on immigration status.
The proposal would classify the refunded portion of four tax credits as a federal public benefit. That could prevent some taxpayers who aren’t U.S. citizens, U.S. nationals, or “qualified aliens” under PRWORA from receiving the cash-refund portion of those credits.
This is only a proposed regulation. It has not been finalized and is not currently in effect.
Which Tax Credits Could Be Affected?
The proposal covers four credits:
- Earned Income Tax Credit (EITC)
- Child Tax Credit, including its refundable portion
- American Opportunity Tax Credit, which can help with qualifying higher-education expenses
- Adoption Tax Credit, including its refundable portion
The proposal focuses on the amount that can be refunded to a taxpayer, rather than the portion used to reduce federal income tax liability.
It does not include every refundable tax benefit. For example, the Premium Tax Credit is not included in this proposal.
What’s the Difference Between Refundable and Nonrefundable?
A tax credit can reduce the amount of federal income tax you owe.
Some credits can also result in money being refunded to you beyond simply reducing your income tax liability. That’s the refundable portion.
This distinction is important because the proposed immigration-status restriction focuses on the amount paid to a taxpayer as a refund.
Under the proposal, a taxpayer who doesn’t meet the applicable PRWORA immigration-status requirement could potentially still use an otherwise allowable credit to reduce federal income tax liability but could be prevented from receiving the refundable amount.
Who Could Be Affected?
The proposal would affect certain noncitizens who do not fall within PRWORA’s definition of a “qualified alien.”
That term has a specific legal meaning and includes several immigration categories, such as lawful permanent residents, refugees, asylees and certain other qualifying groups.
However, being lawfully present in the United States does not automatically mean someone falls within PRWORA’s “qualified alien” definition.
Because immigration categories can be complicated, taxpayers shouldn’t assume they’re included or excluded based simply on whether they are a citizen or have legal immigration status.
What About Mixed-Status Married Couples?
The proposed rule contains an important provision for joint tax returns.
If a married couple files jointly, only one spouse would need to be a U.S. citizen, U.S. national, or qualified alien for the immigration-status requirement to be satisfied.
That means the proposal would not automatically eliminate the refundable portion of these credits simply because one spouse does not independently meet the requirement.
How Would the IRS Verify Eligibility?
Under the proposal, taxpayers claiming a refundable amount covered by the rule would be required to provide a declaration, under penalty of perjury, confirming that they meet the applicable immigration-status requirement.
The proposal also specifies when that status would be determined.
Generally, eligibility would be based on the taxpayer’s status when the return first claiming the credit is filed, including when the credit is first claimed on an amended return.
These procedures are still proposed and could change before any final regulations are issued.
How Many People Could Be Affected?
Treasury and the IRS estimate that approximately 200,000 to 700,000 taxpayers could be ineligible for refundable amounts under the proposed rule for tax year 2026.
They estimate the potential reduction in refundable credits at approximately $700 million to $2.6 billion.
Those figures are estimates, not a final count. Treasury and the IRS have acknowledged limitations in the available data for determining which taxpayers fall within the relevant immigration categories.
Has Anything Changed Yet?
No.
The regulation is still a proposal, so the proposed immigration-status restrictions are not currently in effect.
However, taxpayers should not assume that this automatically means the proposal could not affect the next filing season.
The proposed regulations state that the rules would apply to tax years ending on or after the date final regulations are published.
There is currently no known publication date for final regulations.
Because the timing remains uncertain, taxpayers who could potentially be affected should check the latest IRS guidance before filing their next federal income tax return.
What Happens Next?
The public comment period for this proposal closed on October 5, 2026.
Treasury and the IRS can now review the comments and determine what happens next. The agencies could make changes before issuing final regulations, and there is currently no announced deadline for a final decision.
A public hearing was scheduled for October 14, subject to the conditions described in the proposed regulations.
The most important thing for taxpayers to understand is that a proposal is not the same thing as a final rule.
Until final regulations are published, the restrictions described in this proposal have not taken effect.
Frequently Asked Questions
Is this rule final?
No. These are proposed regulations. The proposed immigration-status restrictions on the refundable portions of these credits are not currently in effect.
Does this affect every immigrant?
No. The proposal uses PRWORA’s specific definition of a “qualified alien.” Some noncitizens fall within qualifying categories and others do not.
Does being legally present in the U.S. automatically mean I qualify?
Not necessarily. “Qualified alien” is a specific legal classification under PRWORA and is not synonymous with every form of lawful immigration status.
What if my spouse is a citizen but I’m not?
Under the proposal, only one spouse filing a joint return would need to be a U.S. citizen, U.S. national, or qualified alien to satisfy this particular requirement.
Does the proposal eliminate these tax credits entirely for affected taxpayers?
No. The proposal focuses on the refundable amount treated as a federal public benefit. An otherwise allowable portion used to reduce federal income tax liability would be treated differently.
Could this affect my next tax return?
It’s too early to know. The proposal says the regulations would apply to tax years ending on or after the publication date of final regulations. Because no final regulations have been published yet, taxpayers should check current IRS guidance before filing.
Relief Recap
The Treasury Department and IRS have proposed changing how immigration status affects the refundable portions of four federal tax credits.
But the key word is proposed.
The new restrictions are not currently in effect, and the final regulations could differ from what has been proposed.
For families who rely on the EITC, Child Tax Credit, American Opportunity Tax Credit, or Adoption Tax Credit, this is an issue worth watching. But there’s no reason to assume you’ve already lost a refund based on a rule that hasn’t been finalized.
If you need help finding assistance that’s available right now, visit our Find Help hub to explore programs that may be available to your household.
