- Proposed rules would block cash tax refunds for DACA recipients and other non-qualifying immigrants starting in 2026.
- The restriction targets the refundable portion of four credits, including Child Tax and Earned Income Tax credits.
- Approximately 49 million families must declare their citizenship status on new IRS tax forms to remain eligible.
The U.S. Department of the Treasury and the Internal Revenue Service proposed rules on August 19, 2026, that would classify cash payments from four refundable tax credits as a federal public benefit. If finalized, the measure could block DACA recipients, many Temporary Protected Status holders, pending asylum applicants and other non-qualifying immigrants from receiving those payments.
The proposal targets the Earned Income Tax Credit, the Child Tax Credit, the American Opportunity Tax Credit and the Adoption Credit. The agencies’ position rests on PRWORA, the 1996 welfare law governing access to certain federally funded benefits.
The rule would not erase the credits altogether. Affected taxpayers could still apply the nonrefundable part against federal income tax until their liability reaches zero. They generally would not receive cash beyond that amount.
That distinction could affect mixed-status households differently. A married couple filing jointly would need only one spouse to be a U.S. citizen, U.S. national or “qualified alien” to receive the cash payment, according to the proposal.
Treasury Secretary Scott Bessent defended the measure as an enforcement step.
“Under President Trump, the days of illegal aliens collecting taxpayer-funded benefits are over. The federal law is clear, and Treasury is enforcing it. American taxpayers should not be forced to foot the bill for benefits going to those who are barred by law from receiving them. These proposed regulations end the abuse, protect the integrity of the tax system, and put Americans first.”
Bessent issued the statement on August 19, 2026. Frank J. Bisignano, the IRS chief executive officer, said refundable credits were designed to provide financial support to low-to-middle income American families and workers.
“Refundable tax credits, like the Earned Income Tax Credit (EITC), were enacted to help low-to-middle income American families and workers receive critical financial support. Today’s proposed regulations ensure that federally funded benefits are reserved for eligible taxpayers and protect the integrity of every taxpayer dollar.”
The proposed restriction reaches four major tax credits
The measure covers the Earned Income Tax Credit, the Additional Child Tax Credit, the American Opportunity Tax Credit and the Adoption Tax Credit. It would classify only the cash payment as a federal benefit, leaving the tax-reduction function in place.
The department estimates that 200,000 to 700,000 noncitizens could lose eligibility. Margot Crandall-Hollick, a principal research associate at the Urban-Brookings Tax Policy Center, said the affected population could reach into the millions when other work-authorized noncitizens outside the qualified-alien definition are included.
The projected federal savings range from $700 million to $2.6 billion in the 2026 tax year. One separate analysis estimated that nearly 1 million people could be affected, including DACA recipients, TPS holders and asylum applicants.
| Credit | Treatment under the proposal |
|---|---|
| Earned Income Tax Credit | The tax-reducing portion remains, while the cash payment could be restricted |
| Additional Child Tax Credit | The tax-reducing portion remains, while the cash payment could be restricted |
| American Opportunity Tax Credit | The tax-reducing portion remains, while the cash payment could be restricted |
| Adoption Tax Credit | The tax-reducing portion remains, while the cash payment could be restricted |
DACA and TPS holders generally have lawful presence and Social Security numbers for work, but the research describes them as outside the law’s narrow qualified-alien category. The proposed treatment would therefore put their annual cash refunds at risk, even when they work lawfully and file federal returns.
Crandall-Hollick said the policy “would land hardest on lower-income households” because those households rely most heavily on cash payments from the credits to remain above the poverty line. Critics also argue that the approach conflicts with congressional intent, pointing to Congress’s historic use of tax credits as economic incentives for work-authorized residents.
The rule still faces a comment period and hearing
The Notice of Proposed Rulemaking carries the identifier REG-119882-25 and RIN 1545-BS06. Its title is “Application of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 to the Refunded Portion of Certain Federal Refundable Tax Credits.”
The notice was scheduled for Federal Register publication on August 20, 2026. The public comment period lasts 45 days and is listed as open until October 5, 2026. A public hearing is scheduled for October 14, 2026.
The regulations are not yet effective. If finalized, they would apply to taxable years ending on or after the date of final publication. The administration expects that framework to reach tax year 2026, with returns filed in early 2027.
Until a final rule takes effect, current filing practice governs. The proposal itself does not change the treatment of the credits immediately.
A new tax-form declaration would widen the administrative reach
To administer the restriction, the IRS plans to ask roughly 49 million families to declare their citizenship or qualified-alien status on tax forms. The research describes that declaration as a first-time requirement of its kind.
That change could affect families beyond the people ultimately denied payments. Advocacy groups warn that some eligible immigrant households may avoid filing because they fear that additional status information could increase surveillance by immigration authorities.
Mixed-status families would receive a specific rule for joint returns. One spouse’s citizenship, national status or qualified-alien classification would generally be enough to preserve eligibility for the cash payment.
The legal theory comes from a 2025 Justice Department analysis
The proposal follows a 2025 legal analysis by the Department of Justice’s Office of Legal Counsel. That analysis reinterpreted the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, under which qualified aliens such as Green Card holders, refugees and asylees may receive federal public benefits.
Tax refunds had not been categorized as public benefits for nearly 30 years. The new approach separates a credit that reduces a tax bill from the cash sent after the credit exceeds that bill.
The distinction allows the administration to restrict the payment without new legislation, according to the proposal’s legal framework. The rule’s eventual reach will depend on the final regulations and their application to individual filing situations.
Crandall-Hollick’s assessment points to the household-level effect: “would land hardest on lower-income households.” The public hearing on October 14, 2026, will provide another opportunity for comments before the agencies decide whether to finalize the regulations.
This article provides general information and is not legal advice. Consult a qualified immigration attorney about your specific case.
