Treasury and the IRS estimate that their proposed limit on refundable tax credits for immigrants would disallow $0.7 billion to $2.6 billion in credits and leave 200,000 to 700,000 taxpayers ineligible for tax year 2026. The numbers appear in a proposed rule published in the Federal Register on August 20. The rule is not final, the public comment period closed October 5, and a public hearing is set for October 14.
The proposal matters to taxpayers who are not U.S. citizens, U.S. nationals or “qualified aliens” under the 1996 welfare law known as PRWORA, and who claim the child tax credit, the earned income credit, the American opportunity credit or the adoption credit. For them, the refunded part of each credit would be off the table, while the part that simply reduces income tax owed would stay available if they otherwise qualify. Everyone else who claims those credits would have to sign a declaration of eligibility on the return under penalty of perjury.
The October 14 public hearing is the next fixed date on this rule, and requests to attend close at 5 p.m. Eastern on October 9.
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How the estimate was built
The notice starts with about 49 million returns that Treasury expects to claim at least one of the four credits in tax year 2026. Of those, about 24 million taxpayers would claim a credit that counts as a federal public benefit under the proposal. The agencies then estimate that 200,000 to 700,000 of them, or 0.8 to 2.8 percent, would likely be ineligible.
The dollar range follows from the same math. Treasury puts the average federal public benefit at $3,656 in 2026, and applying that average to the range yields $0.7 billion to $2.6 billion of disallowed credits. The notice says the IRS lacks direct data on whether taxpayers are qualified aliens, which makes the count a rough one, and the figures assume taxpayers do not change their behavior in response. The agencies conclude that “the economic costs and benefits of the proposed regulations will be small.”
Which credits are covered, and which are not
The rule reaches four credits: the adoption credit, the child tax credit including its refundable additional portion, the American opportunity tax credit, and the earned income credit. The Premium Tax Credit is left out because later laws already address immigration status for that credit, and a separate set of regulations is planned for the Saver’s Match.
The Justice Department’s Office of Legal Counsel concluded that the refunded portions of these credits are federal public benefits, according to the IRS announcement dated August 19. Treasury Secretary Scott Bessent said in it that “the days of illegal aliens collecting taxpayer-funded benefits are over,” and IRS Chief Executive Officer Frank Bisignano said the regulations ensure that federally funded benefits “are reserved for eligible taxpayers.”
Joint returns and the timing test
Under the notice, a taxpayer’s status is judged on the date the first return claiming the credit is filed, whether that return is early, amended or late. On a joint return, the other spouse is treated as a qualified alien if one spouse is a U.S. citizen, U.S. national or qualified alien. The IRS considered splitting a credit between spouses and rejected it to limit the burden on filers.
Taxpayers who are not eligible for the refunded portion could not receive it as a refund, apply it against unpaid tax, or have it used to offset other debts they owe the government.
What comes after the comment period
The docket drew 14,752 comments before it closed on October 5, according to the Federal Register’s record of the notice. The agencies still have to review them, hold the hearing and publish final regulations. The rule would apply only to tax years ending on or after the date final regulations are published, so the earliest effect on a return depends on when that happens.
Tracking the October 14 hearing and the final rule
The full notice, including the hearing logistics, is in the official Federal Register PDF, citation 91 FR 53812, under docket REG-119882-25. The hearing starts at 10 a.m. Eastern at the IRS Building in Washington, with telephone attendance available. Requests to attend are due by 5 p.m. Eastern on October 9, and under the notice the hearing is cancelled if no speaker outlines arrived by the October 5 deadline, so anyone planning to attend should confirm it is still on.
Anyone who claims one of the four credits and is unsure of their immigration category can watch for the final text rather than the proposal. The definitions of qualified alien and the declaration language are the parts most likely to be tested at the hearing, and a final rule can differ from the proposal. Until final regulations are published, the credits work as they do today.
The agencies’ own estimate frames what is at stake: at most 700,000 taxpayers and $2.6 billion in tax year 2026, out of about 49 million returns claiming the credits.
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This article was produced with AI assistance and reviewed by The Financial Wire’s editorial team.
David M. Keller is a finance writer based in Columbus, Ohio, covering personal finance and consumer-focused economic topics. He earned his degree in journalism from Ohio University and began his career reporting on local business and economic trends for a regional media outlet. Since then, he has contributed to a variety of online publications, focusing on clear, practical coverage of topics such as cost of living, debt, and everyday financial decision-making.
