Could New IRS Rules Change Your Tax Credit Eligibility?

The IRS has proposed new regulations that could affect whether certain immigrants are eligible to receive some refundable federal tax credits. Under the proposal, undocumented immigrants would no longer be eligible for certain refundable tax credits, including the Earned Income Tax Credit (EITC), the refundable portion of the Child Tax Credit, the American Opportunity Tax Credit (AOTC), and the refundable portion of the Adoption Credit.

Who Could Be Affected?

The proposed rules are based on the idea that these tax credits qualify as federal public benefits under the Personal Responsibility and Work Opportunity Reconciliation Act of 1996.

Under that law, certain federal public benefits are limited to individuals who meet specific immigration-status requirements. The proposal would generally limit these refundable credits to U.S. citizens, lawful permanent residents, and other immigrants who meet the definition of a “qualified alien.”

Qualified aliens can include:

• Lawful permanent residents (green card holders)

• Certain refugees

• Individuals granted asylum

• Certain individuals granted other qualifying immigration statuses

There is also an important rule for married couples filing jointly: only one spouse needs to be a U.S. citizen, resident, or qualified alien for the couple to potentially remain eligible under the proposed rules.

What Happens Next?

The IRS is looking to move quickly on the proposal. The public has until October 5, 2026, to submit comments, with a public hearing currently scheduled for October 14, 2026. Because the proposal could significantly affect taxpayers and their families, it may also face legal challenges if the rules are finalized. Some attorneys and tax professionals have argued that restricting access to refundable tax credits based on immigration status may require action from Congress rather than being done through IRS regulations alone.

What Should Taxpayers Do?

For now, these are proposed regulations, not final rules. Taxpayers should keep an eye on the IRS's updates as the comment period and hearing move forward. If the regulations are finalized, they could have a significant impact on how certain taxpayers qualify for refundable credits when filing their federal income tax returns. If you believe your immigration status could affect your eligibility for a tax credit, consider speaking with a qualified tax professional about your individual situation.