Donald Trump’s administration is trying to stop undocumented immigrants and other people who don’t qualify from getting the refund part of four big tax credits. The Treasury says this change could save taxpayers about $3 billion, according to the New York Post.
The Treasury Department and IRS released proposed rules on Wednesday, August 19.
The administration estimates that almost 1 million people might lose the refund part of these credits.
Treasury Secretary Scott Bessent said the move is about following existing federal law.
“Under President Trump, the days of illegal aliens collecting taxpayer-funded benefits are over. The federal law is clear, and Treasury is enforcing it,” Bessent said.
Which tax credits are affected?
The proposed rules are about the refund part of refundable tax credits.
People who qualify can still use the credit to lower their federal tax bill, but those who aren’t eligible won’t get a refund if the credit is more than their tax owed.
The four credits affected by these rules are the adoption tax credit, child tax credit, American opportunity tax credit, and earned income tax credit.
Refundable credits can result in a payment if the credit amount is more than a taxpayer’s federal income tax bill.
IRS Chief Executive Officer Frank J.
Bisignano said the rules will make sure taxpayer-funded benefits go only to people who are eligible.
Nearly 1 million people could lose refundable tax credits
Treasury estimates that the change would stop nearly 1 million people from getting the refund part of these credits and save taxpayers about $3 billion.
Bessent said, “American taxpayers should not be forced to foot the bill for benefits going to those who are barred by law from receiving them.”
He also added, “These proposed regulations end the abuse, protect the integrity of the tax system, and put Americans first.”
The legal basis for the proposed changes
The latest proposal follows a Treasury announcement from November 2025.
At that time, the department said it would treat the refund part of certain tax credits as “federal public benefits” under the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, or PRWORA.
In November 2025, the Justice Department’s Office of Legal Counsel concluded that the refund part of refundable tax credits are federal public benefits and therefore not available to people who don’t qualify under the law.
Treasury had said at the time that final rules would take effect beginning with the 2026 tax year.
Proposed rules expand restrictions on federal benefits
The tax-credit proposal is part of the Trump administration’s broader effort to limit federal benefits for people in the U.S.
without legal status.
The administration presents the change as enforcing existing law, not creating a new benefit restriction.
President Trump signed Executive Order 14218 on 19 February 2025.
The order said: “My Administration will uphold the rule of law, defend against the waste of hard-earned taxpayer resources, and protect benefits for American citizens in need, including individuals with disabilities and veterans.”
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