Compliance
Federal Proposed Rules: Refundable Credits and Eligibility Under Immigration Law
IRS proposes to limit the refunded portion of key refundable credits to U.S. citizens, nationals, and qualified aliens under proposed rules to enforce PRWORA.
By NomadicTax Research Team • 5-8 min read • September 3, 2026
## Overview of the proposed rule change
- On **Aug. 19, 2026**, Treasury and IRS issued proposed regulations applying the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) to clarify eligibility rules for refundable tax credits: EITC, Child Tax Credit, American Opportunity Tax Credit, Adoption Credit. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-proposes-rules-to-protect-refundable-tax-credits-from-abuse-by-illegal-aliens?utm_source=openai))
- Specifically, the **refunded portion** of these credits will be treated as **federal public benefits**, and only U.S. citizens, U.S. nationals or qualified aliens will be eligible to receive those refunds. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-proposes-rules-to-protect-refundable-tax-credits-from-abuse-by-illegal-aliens?utm_source=openai))
## Requirements under the proposed regulation
- Taxpayer must be a **U.S. citizen, national, or qualified alien** on the date the tax return claiming the credit is filed. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-proposes-rules-to-protect-refundable-tax-credits-from-abuse-by-illegal-aliens?utm_source=openai))
- Must declare under **penalty of perjury** eligibility for the refunded portion. Joint returns require only **one spouse** to meet the requirement. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-proposes-rules-to-protect-refundable-tax-credits-from-abuse-by-illegal-aliens?utm_source=openai))
## What remains intact
- Taxpayers not meeting those status rules may still claim non-refunded portions of credits to offset income tax liability. No change there. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-proposes-rules-to-protect-refundable-tax-credits-from-abuse-by-illegal-aliens?utm_source=openai))
## Implications & compliance impact
- Immigrant taxpayers should double-check their immigration status and eligibility before claiming refunds on these credits.
- Mistakes could lead to denied refunds or penalties under perjury provision.
- Advocates warn about risk of chilling effect, as noncitizens might avoid claiming credits altogether.
## Practical steps for taxpayers & preparers
- Determine whether you qualify as a “qualified alien.” Categories include lawful permanent residents, refugees, asylees, etc. Check PRWORA definitions.
- When filing, keep immigration documentation ready in case of audit.
- Tax software and preparers should update forms and fill eligibility declarations carefully.
- Stay tuned: these are **proposed regulations**, meaning only after final rules are published do they become binding. Comments due per announcement.
## Example scenario
Miguel, who is a lawful permanent resident, files Form 1040 and qualifies under PRWORA—he would get the refunded portion correctly. Maria, an undocumented or non-qualified alien, files joint returns with U.S. citizen spouse—only spouse’s status counts—Maria could claim the offset portion, but not the refundable portion, if not a qualified alien.
## What to watch next
- Publication of the final regulation under IR-2026-93.
- Possible legal challenges and legislative pushback.
- Adjustments in tax software and IRS form declarations. Potential state parallel changes (e.g. state refundable credits) could follow suit.