IRS proposes to bar non-qualified aliens from refunded tax credits
The rule would treat the refunded portion of the adoption, American opportunity, child and earned income credits as a Federal public benefit, making non-qualified aliens ineligible, with comments due Oct. 5 2026.
The Internal Revenue Service issued a notice of proposed rulemaking (FR Doc No: 2026-16985, docket REG-119882-25) that would classify the refunded portion of certain refundable individual tax credits as a "Federal public benefit" under the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA). Written or electronic comments must be received by October 5, 2026, and a public hearing is scheduled for October 14, 2026, with requests to speak due by the same date and attendance requests due by 5 p.m. ET on October 9, 2026.
The proposed regulations apply to the adoption tax credit, the American opportunity tax credit, the child tax credit, and the earned income credit. Under PRWORA, aliens who are not "qualified aliens" as defined in 8 U.S.C. 1641 are ineligible for any Federal public benefit, and the rule would extend that ineligibility to the refunded portion of the listed credits.
The Treasury Department previously did not treat refundable tax credits as public benefits. In 2020 the Office of Legal Counsel issued an opinion concluding that the refunded portions of the earned income credit, child tax credit, and American opportunity tax credit may reasonably be construed as Federal public benefits. A subsequent request in 2025, prompted by Executive Order 14218, sought clarification on additional credits; the OLC responded on November 19, 2025, reaffirming the earlier interpretation.
Comments should be submitted electronically through the Federal eRulemaking Portal at www.regulations.gov, referencing IRS and REG-119882-25. Paper comments may be mailed to CC:PA:01:PR (REG-119882-25), Room 5503, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. For questions about the proposed regulations, contact Branch 4 of the Office of Associate Chief Counsel (Income Tax & Accounting) at (202) 317-4718; for comment-submission inquiries, contact the Publications and Regulations Section at (202) 317-6901 or email the protected address provided.
The proposed amendments would be made to 26 CFR part 1 under the authority of IRC sections 23, 24, 25A, and 32, and PRWORA section 404, which requires agencies to notify the public and benefit recipients of changes to eligibility for Federal public benefits.