Treasury and the IRS want to treat the refunded part of four tax credits as a federal public benefit, which would put an immigration test on the refund and not on the credit

The rule is not in the tax code. It is in a 1996 welfare statute, and the question Treasury and the IRS have now answered in a proposed regulation is whether a tax refund is a benefit within the meaning of it.

Their answer is that part of one is. Under proposed regulations filed for public inspection on Wednesday, the refunded portion of four credits would be a federal public benefit under the Personal Responsibility and Work Opportunity Reconciliation Act, which makes aliens who are not qualified aliens ineligible for such benefits. The four are the adoption credit, the child tax credit, the American opportunity tax credit and the earned income credit.

The line runs through the credit, not around it

The proposal reaches only the amount by which those credits exceed the filer's income tax liability. Below that line, the credit works as it always has and offsets tax owed. Above it, the money would become a benefit that a person who is not a citizen, a national or a qualified alien could not receive.

That distinction has a mechanical consequence the preamble spells out. The refunded portion is close to what the code calls an overpayment, but it is not the same thing, because it is limited to these four credits. Where a filer is not eligible, the overpayment otherwise available for refund, credit or offset is reduced by the disallowed amount, and other refundable credits on the same return are not swept in.

Status is tested on one date: the day the return first claiming the credit is filed. The document says that may be an early return, an amended return or a late one. On a joint return, one of the two spouses must qualify.

A new attestation, and the statutes behind it

Filers would have to sign a declaration under penalty of perjury stating that they are a citizen, a national or a qualified alien eligible to receive the refund. The IRS says it intends to update forms and instructions to carry it. A filer who does not provide the declaration in the required form would not be eligible for the refunded portion, whatever their status.

The preamble then sets out what a false one costs. Section 7206 makes willfully providing untrue information on a return a felony carrying a fine of up to $100,000 and up to three years in prison. Two criminal statutes outside the tax code are cited alongside it, one covering a knowing false claim of citizenship made to obtain a benefit and one covering materially false statements to any branch of the federal government.

Where the reasoning comes from, and what it leaves alone

The legal basis is two opinions from the Justice Department's Office of Legal Counsel, the first sent to Treasury's general counsel in December 2020 and the second issued in November 2025, which the preamble says concluded that the earlier reading is the best one available.

Three things sit outside the proposal, and the reasons are worth reading together. The premium tax credit is excluded because Congress wrote immigration rules for it directly, first in the Affordable Care Act and again last year, and the preamble treats those as superseding the 1996 statute. Contributions under the Trump Accounts pilot are excluded because the statute already limits them to children who are United States citizens. The Saver's Match, which starts in 2027, is to be handled in separate regulations.

Comments are due 45 days after publication. A public hearing is set for 14 October, and it will be cancelled if nobody files an outline of topics. The rules would apply to taxable years ending on or after the date they are published in final form.