The Treasury Department and the Internal Revenue Service unveiled a new proposal Wednesday that would tighten restrictions on certain immigrants' ability to claim refundable tax credits, marking the latest move in the Trump administration's broader campaign to limit non-U.S. citizens' access to federal benefits.
The proposed rule would reclassify the refundable portions of four major tax credits—the adoption tax credit, the child tax credit, the American opportunity tax credit, and the earned income tax credit—as "federal public benefits." Under that designation, noncitizens who hold Social Security numbers and are legally authorized to work in the United States could be disqualified from receiving those refunds, according to the Treasury Department.
In a statement, Treasury Secretary Scott Bessent framed the proposal as an enforcement measure. "Under President Trump, the days of illegal aliens collecting taxpayer-funded benefits are over. The federal law is clear, and Treasury is enforcing it," he said. "American taxpayers should not be forced to foot the bill for benefits going to those who are barred by law from receiving them. These proposed regulations end the abuse, protect the integrity of the tax system, and put Americans first."
The proposal specifically targets immigrants residing in the U.S. under Temporary Protected Status (TPS) or Deferred Action for Childhood Arrivals (DACA), who would likely lose eligibility for these tax breaks if the rule is implemented.
This is not the first time the administration has used the tax system to advance immigration enforcement. In February, a federal court rejected a challenge to the IRS's practice of sharing tax data with the Department of Homeland Security to identify undocumented immigrants. The new Treasury proposal also aligns with a Justice Department legal opinion issued last year, which argued that noncitizens' use of certain benefits "contradicts the textually expressed congressional policy that aliens must not rely on taxpayer support or burden the public benefits system." That interpretation is currently facing litigation.
The Treasury estimates the change could save between $700 million and $2.6 billion annually. According to Social Security Administration data, roughly 200,000 to 700,000 taxpayers—under 3 percent of those who claim the affected credits—could be impacted. However, public data suggests the actual number could be higher. The Pew Research Center reported that in 2023, there were 2.6 million asylum applicants, 650,000 TPS holders, and 600,000 DACA enrollees who might be affected.
The proposal is part of a broader pattern of the administration leveraging tax policy to tighten immigration restrictions. The administration's fiscal approach has drawn scrutiny from both parties, with critics arguing that such measures could harm law-abiding immigrants and their families. Supporters, however, see it as a necessary step to protect taxpayer dollars.
Immigration advocates have vowed to challenge the rule, arguing it oversteps legal boundaries and could have unintended consequences. The proposal is now open for public comment before any final rule is issued.
