IRS CEO Frank Bisignano says a proposed rule would ensure that refundable portions of four federal tax credits are paid only to U.S. citizens, nationals and immigrants who qualify for federal public benefits under existing law.
By yourNEWS Media Newsroom.
Internal Revenue Service CEO Frank Bisignano is defending a Trump administration proposal that would prevent illegal immigrants and certain other noncitizens from receiving the refundable portion of four federal tax credits, saying the change appropriately limits taxpayer-funded benefits to people legally eligible for them.
The Treasury Department and IRS proposed the regulations Aug. 19, seeking to classify refunded portions of the child tax credit, earned income tax credit, American opportunity tax credit and adoption tax credit as federal public benefits under the Personal Responsibility and Work Opportunity Reconciliation Act of 1996.
“The idea that people who are here illegally can afford some of the benefits that our tax systems gives as credits and refunds to hardworking Americans who are citizens was just never right. And obviously, you’re always going to have people on the other side. But this is so clear that it’s appropriate,” Bisignano said.
The proposal has not yet taken effect. Treasury and the IRS are accepting public input as part of the federal rulemaking process, and the restrictions would apply only to tax years ending on or after publication of a final regulation.
The distinction between a tax credit and its refundable portion is central to the proposal.
Tax credits can reduce a taxpayer’s federal income tax liability. Some credits are refundable, meaning that if the available credit exceeds the amount of income tax owed, some or all of the excess can be paid to the taxpayer as a refund.
Under the proposed regulations, only that excess refunded amount would be treated as a federal public benefit.
A taxpayer who is otherwise eligible for one of the affected credits but does not meet the immigration-status requirements could still use the allowable portion of the credit to reduce federal income tax liability. The taxpayer would not be eligible to receive the amount exceeding that liability as a refund.
The administration is relying on the 1996 welfare law known as PRWORA, which generally bars immigrants who do not fall within the statute’s definition of a “qualified alien” from receiving federal public benefits, subject to specified exceptions.
Qualified immigrants under the law include lawful permanent residents, refugees, people granted asylum and certain other categories. U.S. citizens and U.S. nationals would also remain eligible under the proposed tax regulations.
For married couples filing jointly, the proposal states that only one spouse would need to be a U.S. citizen, U.S. national or qualified immigrant for the couple to satisfy the immigration-status requirement for the refundable portion.
The administration’s position is based partly on legal opinions from the Justice Department’s Office of Legal Counsel.
Treasury began reconsidering whether refundable tax credits could fall under PRWORA during Trump’s first administration. A 2020 Justice Department opinion concluded that the refundable portions of the earned income tax credit, child tax credit and American opportunity tax credit could reasonably be considered federal public benefits under the 1996 law.
The Justice Department revisited the issue in 2025 and concluded that the earlier interpretation represented the best reading of the statute. Treasury and the IRS incorporated that analysis into the newly proposed regulations, adding the refundable portion of the adoption tax credit to the credits covered by the rule.
Treasury and the IRS acknowledged that this represents a change in how the tax system has historically treated the issue. Before 2018, the agencies had not regarded individual refundable income tax credits as federal public benefits under PRWORA.
The proposed regulations would establish an eligibility check based on a taxpayer’s immigration status when the federal return claiming the credit is initially filed.
A person seeking the refundable portion would also have to declare under penalty of perjury that he or she meets the applicable eligibility requirements.
Treasury and the IRS estimate that approximately 49 million individual federal returns will claim at least one of the four affected credits for tax year 2026.
Of those, the agencies estimate approximately 24 million taxpayers will receive refundable amounts that would be considered federal public benefits under the proposal.
The government does not have sufficient immigration-status data to calculate precisely how many taxpayers would lose refundable amounts. Its preliminary estimate places the number between 200,000 and 700,000 taxpayers, or approximately 0.8% to 2.8% of those receiving the affected refundable benefits.
The IRS also noted that existing tax law already imposes Social Security number requirements for many of the affected credits, meaning the proposed regulation would add an immigration-benefit eligibility test rather than create the first eligibility restrictions surrounding them.
Bisignano said when Treasury announced the proposal that refundable credits such as the earned income tax credit were created to provide financial assistance to lower- and middle-income workers and families.
“Today’s proposed regulations ensure that federally funded benefits are reserved for eligible taxpayers and protect the integrity of every taxpayer dollar,” he said.
Treasury Secretary Scott Bessent similarly characterized the proposal as enforcement of the eligibility restrictions Congress enacted in 1996.
The practical effect, if the regulations become final, would not be to bar every noncitizen from receiving refundable tax credits.
Rather, eligibility for the refunded portion would turn on whether the taxpayer is a citizen, U.S. national or belongs to one of the immigration categories recognized as qualified under PRWORA.
For unauthorized immigrants and other nonqualified immigrants, the most important change would occur when a qualifying tax credit exceeds their federal income tax bill.
They could potentially continue using an otherwise allowable credit to reduce that tax liability, but the additional amount that would ordinarily be paid as a refund would no longer be available under the administration’s proposed interpretation of federal public-benefit law.
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