WASHINGTON, D.C. — The Treasury Department and Internal Revenue Service proposed rules restricting refundable portions of four federal tax credits to U.S. citizens, nationals and qualifying immigrants, a change that would limit access to government payments exceeding a taxpayer’s income tax liability.
The proposal covers the earned income tax credit, child tax credit, adoption tax credit and American opportunity tax credit. It would apply to tax years ending on or after the regulations are finalized.
Under the proposed regulations, taxpayers claiming refundable amounts must be U.S. citizens, U.S. nationals or qualifying immigrants when they first file the federal return seeking the credit.
Qualifying immigrants include lawful permanent residents, refugees, individuals granted asylum and other categories recognized under the Personal Responsibility and Work Opportunity Reconciliation Act of 1996.
Taxpayers would also be required to declare their eligibility on their returns under penalty of perjury. For married couples filing jointly, only one spouse would need to meet the citizenship or immigration requirements.
The restrictions would apply only when the combined value of the affected refundable credits exceeds the taxpayer’s income tax liability. Taxpayers who do not qualify for a refund could still claim eligible portions of those credits to reduce taxes owed.
Treasury and the IRS based the proposal on the 1996 law governing eligibility for federal public benefits. The Department of Justice’s Office of Legal Counsel concluded that refunded portions of the four credits qualify as such benefits, according to the agencies.
Treasury Secretary Scott Bessent characterized the proposal as an effort to enforce existing restrictions on federally funded benefits and “protect the integrity of the tax system.”
IRS Chief Executive Officer Frank J. Bisignano pointed to the earned income tax credit as a program intended to provide “critical financial support” to eligible families and workers.
The regulations would take effect only after they are published in final form.
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