Trump administration proposes changes limiting H-1B holders’ access to refundable tax credits

# Treasury and IRS Propose New Eligibility Rules for Refundable Tax Credits

The U.S. Treasury Department and Internal Revenue Service have proposed new regulations aimed at clarifying who can legally receive the refundable portions of several federal individual income tax credits. The move is part of the Trump administration’s broader effort to tighten eligibility requirements for federally funded benefits and strengthen enforcement of existing immigration-related laws.

The proposed rules would apply the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, commonly known as PRWORA, to certain refundable tax credits. Treasury said the regulations would clarify that the refundable portions of these credits qualify as federal public benefits and are therefore subject to federal eligibility restrictions.

Treasury Secretary Scott Bessent said the administration wants to prevent taxpayer-funded benefits from being provided to individuals who are legally barred from receiving them. The department said the proposed rules are intended to protect the integrity of the tax system and ensure that federal benefits are distributed according to existing law.

Under PRWORA, eligibility for federal public benefits is generally limited to U.S. citizens, U.S. nationals and certain categories of qualified aliens. The administration said the proposed regulations follow a legal analysis by the Justice Department’s Office of Legal Counsel concluding that the refundable portions of the affected tax credits fall within the definition of federal public benefits.

The proposed regulations would cover four major tax credits: the adoption tax credit, child tax credit, American opportunity tax credit and earned income tax credit. Taxpayers seeking the refundable portion of any of these credits would need to meet the eligibility requirements on the date they file the federal tax return on which they first claim the credit.

The rules would also require taxpayers to confirm their eligibility on their tax returns under penalty of perjury. This would place an additional responsibility on taxpayers to accurately establish their legal eligibility before receiving the refundable portion of an affected credit.

Certain immigrants would still qualify under the proposal. The category of “qualified aliens” includes lawful permanent residents, refugees, asylees and certain other groups specifically recognized under PRWORA.

For married couples filing jointly, the proposed rules contain a different provision. Only one spouse would need to meet the citizenship or qualified-alien requirement for the joint return to qualify for the refundable portion of the affected credit.

The regulations would take effect for tax years ending on or after the date the rules are ultimately published as final regulations. Until then, the proposal remains subject to the federal regulatory process.

The announcement comes as the Trump administration continues to increase scrutiny of immigration status and access to federal programs. If finalized, the regulations could affect how millions of taxpayers determine their eligibility for refundable tax credits and could add another layer of verification to the federal tax filing process.