The Trump administration on Wednesday proposed new rules that would limit illegal immigrants’ ability to apply for some refundable tax credits, calling it a type of welfare that is supposed to be barred under federal law.
The changes would apply to the adoption tax credit, the child tax credit, the American opportunity tax credit and the earned income tax credit.
Each is refundable, meaning that if their credit is worth more than their taxes owed, the IRS would pay them the additional money. Under the new proposal, unauthorized migrants would still be able to claim the regular credit against their taxes but would no longer be paid the extra amount.
“Under President Trump, the days of illegal aliens collecting taxpayer-funded benefits are over,” said Treasury Secretary Scott Bessent. “American taxpayers should not be forced to foot the bill for benefits going to those who are barred by law from receiving them.”
Savings could reach as much as $2.6 billion a year, Frank J. Bisignano, chief executive officer of the IRS, said in the official proposal, which was submitted to the Federal Register and faces a period of public comment.
Since the late 1800s, federal law encouraged immigrants to pay their own way and not become reliant on public assistance.
Mr. Bisignano said he’s making good on a 1996 welfare reform law that specifically limited the types of public benefits immigrants, and in particular illegal immigrants, could claim.
That law applies to cash benefits. For decades, the government didn’t consider tax credits to be cash benefits — even though they could be worth thousands of dollars a year to recipients.
The first Trump administration moved to change that, reinterpreting the law to say it does apply to refundable tax credits or at least the portion that’s not just reducing a taxpayer’s liability but actually paying money out.
The bar wouldn’t apply to migrants who have been granted asylum or refugee status and to other categories of quasi-legal status such as those granted “parole” into the U.S. for at least a year.
Each tax credit has its own rules on income eligibility and limits on how much can be paid out. Up to $5,000 of the adoption tax credit is refundable, for example.
Mr. Bisignano said the tax credits were intended to help lower- or middle-income Americans.
“Today’s proposed regulations ensure that federally funded benefits are reserved for eligible taxpayers and protect the integrity of every taxpayer dollar,” he said.
The new rules would not apply to the premium tax credit, a part of Obamacare. Under the original Affordable Care Act and last year’s One Big Beautiful Bill budget law, illegal immigrants are supposed to be blocked from access to the credit.
The new Trump Accounts for children under 18 years old — and the $1,000 one-time payment for eligible children — are also exempt from the rules because the accounts are limited to U.S. citizens.
The Treasury Department and the IRS said the new rules make good on President Trump’s February 2025 executive order directing agencies to ensure they are following the 1996 welfare law.
After the order, the Treasury Department asked the Department of Justice’s Office of Legal Counsel for an official opinion on refundable tax credits and how they comply with the law.
The Office of Legal Counsel said the refundable parts — the cash payments — trigger the welfare law’s prohibition.
For joint returns, having one of the parents qualify for the credit is sufficient to claim the refundable portion, the IRS said.
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