Treasury plans to change tax credit eligibility in a move critics say will hurt immigrant taxpayers

U.S. Treasury to Bar Certain Immigrants from Tax Credits Despite Tax Contributions

The U.S. Treasury Department announced Thursday plans to reclassify several refundable tax credits as “federal public benefits,” a move that will prevent many immigrant taxpayers from receiving these credits even if they file and pay taxes and would otherwise qualify.

Tax policy experts indicate that those most affected will include DACA recipients (immigrants brought to the U.S. illegally as children), individuals with Temporary Protected Status, and potentially foreign workers and student visa holders. Some families with U.S. citizen children could also feel the impact, depending on the final language of the rule.

The announcement represents another step in the Trump administration’s comprehensive approach to immigration enforcement, expanding beyond the Department of Homeland Security to enlist other federal agencies in implementing the president’s restrictive immigration policies.

According to the Treasury’s announcement, the new rules will specifically target the refunded portions of several individual income tax credits, including the Earned Income Tax Credit, Additional Child Tax Credit, American Opportunity Tax Credit, and Saver’s Match Credit. By redefining these credits under the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, many immigrants who are authorized to work in the U.S. will lose access to these benefits.

The policy shift highlights a significant disparity in the tax system. The Institute on Taxation and Economic Policy reports that undocumented immigrants contributed nearly $100 billion in federal, state, and local taxes in 2022, yet they already face substantial limitations in accessing tax benefits compared to U.S. citizens. For example, undocumented immigrants remain ineligible for Social Security retirement benefits and Medicare health insurance, despite contributing billions to the federal payroll taxes that fund these programs.

Critics have denounced the proposed change as discriminatory and counterproductive. Daniel Costa, director of Immigration Law and Policy Research at the Economic Policy Institute, called it “a terrible and unfair idea to deny tax credits to people who have paid taxes and are eligible for them because of their immigration status.” Costa also raised concerns about how the policy would be implemented, suggesting it would require determining individuals’ immigration status and could potentially expand deportation efforts.

Treasury Secretary Scott Bessent defended the move, stating that the administration is “enforcing the law and preventing illegal aliens from claiming tax benefits intended for American citizens.” The Treasury Department sought a reinterpretation from the Justice Department to provide legal grounds for the new rule, which is expected to take effect beginning in tax year 2026.

Carl Davis, research director at the Institute on Taxation and Economic Policy, emphasized that since people without work authorization already don’t qualify for these refundable credits, the new policy will primarily impact those who are legally authorized to work and paying taxes. “The folks who are really going to be impacted are people who are really trying to do the right thing,” Davis said, suggesting that the administration’s goal appears to be making life more difficult for tax-paying immigrants.

The Treasury’s approach has also raised questions about executive authority. Brandon DeBot, Policy Director at NYU Tax Law Center, argued that the reinterpretation “overrides such clear provisions of the tax code” and that “denying tax credits to immigrant families requires Congress to act explicitly.” Davis speculated that the administration is acting unilaterally because there likely wouldn’t be sufficient congressional support for the policy change.

“The American people are broadly sympathetic to the Dreamers and DACA recipients. Targeting them in this roundabout way, that’s not a policy change that would’ve had majority support in Congress,” Davis noted.

The move comes amid broader debates about immigration policy and tax fairness, raising questions about the proper balance between immigration enforcement and equitable treatment of all taxpayers, regardless of immigration status.