- The Trump administration proposed restricting tax credits for undocumented immigrants to save three billion dollars annually.
- The new rules target four major credits including the Earned Income and Child Tax Credits for twenty twenty-six.
- Legal challenges have been filed by Massachusetts and Minnesota to block the reinterpretation of welfare laws.
The Trump administration proposed regulations Wednesday to restrict undocumented immigrants’ access to the refundable portions of four federal tax credits, estimating the change will save taxpayers $3 billion annually.
The proposal is intended to apply beginning in Tax Year 2026. Officials said it could prevent about one million undocumented immigrants from claiming the credits.
The measure emerged publicly on August 19, 2026, after White House review earlier this month. The administration has presented the savings figure without an underlying Treasury or IRS calculation in the proposal’s supporting material.
The change targets eligibility rather than the basic structure of the credits. Treasury and the IRS would classify their refundable portions as “federal public benefits” under the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, commonly known as PRWORA.
People without a Social Security number would face restrictions under the proposed approach. The rule carries the designations REG-119882-25 and RIN 1545-BS06.
Scott Bessent, Secretary of the Treasury, described the proposal as enforcement of existing law. He issued the statement on August 19, 2026.
“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.”
Frank J. Bisignano, the Internal Revenue Service Chief Executive Officer, said the regulations would reserve federally funded benefits for eligible taxpayers and protect taxpayer dollars.
“Today's proposed regulations ensure that federally funded benefits are reserved for eligible taxpayers and protect the integrity of every taxpayer dollar.”
Taylor Rogers, a White House spokesperson, said undocumented immigrants would no longer be able to receive public benefits at taxpayers’ expense.
“Illegal immigrants will no longer be able to steal public benefits at the expense of hardworking American taxpayers. That ends now. Under President Trump, it’s America first always.”
Four credits would face the new eligibility test
The proposed treatment covers four programs with different purposes. Their refundable portions can produce payments when a taxpayer’s credit exceeds the person’s tax liability.
| Credit | Purpose described by the administration | Proposed treatment |
|---|---|---|
| Earned Income Tax Credit | Credit for low-to-moderate-income working individuals and couples | Refundable portion treated as a federal public benefit |
| Additional Child Tax Credit | Refundable portion of the Child Tax Credit | Refundable portion treated as a federal public benefit |
| American Opportunity Tax Credit | Credit for qualified education expenses | Refundable portion treated as a federal public benefit |
| Saver’s Match Credit | Credit for mid- and low-income savers | Refundable portion treated as a federal public benefit |
The action forms part of a broader “America First” initiative targeting more than 15 federal assistance programs. Those programs collectively account for $40 billion in public spending.
The proposal builds on a broader benefits crackdown
The administration’s approach follows two executive actions. On February 19, 2025, President Trump signed “Ending Taxpayer Subsidization of Open Borders,” directing federal agencies to verify eligibility for all benefit programs.
On May 19, 2026, Trump signed “Restoring Integrity to America's Financial System.” That order targeted the use of the U.S. financial system by populations described as “inadmissible and removable.”
The Department of Justice’s Office of Legal Counsel issued a formal opinion in late 2025 supporting the position that refundable credits can qualify as federal public benefits under the 1996 PRWORA.
The Republican-controlled House passed the One Big Beautiful Bill Act in late 2025. The legislation provided the statutory framework for many eligibility changes, including restrictions on public benefits and the child tax credit when undocumented immigrants have U.S.-citizen children.
Mixed-status families could feel the change first
The proposal could affect households that include U.S. citizens and noncitizens. Critics say a parent’s filing method could influence whether a citizen child receives the benefit associated with a tax return.
The Institute on Taxation and Economic Policy argues that the policy would disproportionately harm U.S. citizen children in households where parents file taxes with an Individual Taxpayer Identification Number, or ITIN.
Advocacy groups also warn about “non-qualified aliens.” Their examples include some DACA recipients and people with Temporary Protected Status, who could lose access depending on the final regulatory language.
Aaron Reichlin-Melnick, Senior Fellow at the American Immigration Council, said these families already pay billions in federal and payroll taxes. He also said removing the credits could increase poverty among essential workers.
The final eligibility test for every immigrant category remains unresolved. The completed regulations will determine how the restrictions apply across those groups.
The proposal faces a legal challenge and implementation questions
Multi-state lawsuits led by the Commonwealth of Massachusetts and the State of Minnesota challenge the administration’s reinterpretation of the 1996 welfare law. The litigation is identified as Case: 26-1329 in the U.S. District Court for the District of Massachusetts.
The rule is administrative, not an immigration decision by an immigration court or federal appellate body. It is not an EOIR, USCIS, BIA, or federal court immigration ruling.
Bisignano holds two senior roles. He serves as the IRS Chief Executive Officer and as Social Security Administration Commissioner.
The Treasury Department created the IRS chief executive position to streamline implementation of the restrictive policies without additional Senate confirmation.
White House review cleared the proposal on August 5, 2026. The regulations were newly issued or released on August 19, 2026.
This article provides general information and is not legal advice. Consult a qualified immigration attorney about your specific case.
