The Donald Trump administration wants to restrict refunds from four tax credits for immigrants who do not meet certain immigration requirements.

The Treasury Department and IRS proposal would affect benefits related to children, low- and middle-income workers, college education and adoption.

  • Why it matters: The change would not affect all immigrants or completely eliminate these tax credits. The proposal specifically seeks to limit who can receive money as a refund after filing a tax return.

Treasury and IRS Propose New Rules for Four Tax Credits

The Treasury Department and Internal Revenue Service (IRS) officially announced proposed regulations on August 19 establishing who can receive the refundable portion of certain individual federal income tax credits.

  • The rules cover four benefits: the Earned Income Tax Credit (EITC), Child Tax Credit, American Opportunity Tax Credit and Adoption Tax Credit.

According to the Trump administration, the measure would save taxpayers $3 billion.

The administration says the measure is intended to enforce the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA).

Not All Immigrants Would Lose Tax Refunds

The proposal states that a taxpayer must be a U.S. citizen, U.S. national or qualified alien when initially filing the tax return claiming the affected credit.

The latter category includes lawful permanent residents, asylees, refugees and certain other groups covered under PRWORA.

Additionally, when filing a joint tax return, only one spouse would need to meet one of those requirements, according to the Treasury Department.

Losing the Refund Does Not Mean Losing the Entire Tax Credit

  • There is an important distinction: The proposed regulations focus exclusively on the refundable portion of the four credits.

A taxpayer who cannot receive the refundable portion could still claim any part of the credit for which they otherwise qualify and use it to reduce the federal taxes they owe.

In other words, the proposal distinguishes between reducing a tax liability and receiving additional money as a refund.

These Changes Are Not Yet in Effect

The restrictions on tax refunds for immigrants are still a proposal and do not yet constitute a final rule. The Treasury Department and IRS will accept public comments and requests for a hearing on the proposed regulations.

If finalized, the new requirements would apply to tax years ending on or after the date the final regulations are published.

For immigrant families, therefore, it will be important to follow the regulatory process before assuming that their upcoming tax refunds for immigrants have already been changed.