TaxWrenWhat changed
- Treasury and the IRS proposed on August 19, 2026 that the part of four refundable credits paid out beyond your tax (child tax credit, earned income credit, American opportunity credit, adoption credit) would go only to US citizens, US nationals and "qualified aliens".
- Treasury estimates 200,000 to 700,000 taxpayers would lose that payout for 2026. The credits can still reduce their tax to zero, and withheld tax is still refunded.
- Comments closed on October 5, 2026 and the hearing was cancelled on October 9, 2026. The rules would apply to tax years ending on or after the day they are published as final.
On this page
Treasury and the IRS proposed on August 19, 2026 (IR-2026-93) that the refunded part of four individual tax credits counts as a "federal public benefit" under the 1996 welfare law, PRWORA. If the rules are made final, only US citizens, US nationals and qualified aliens could receive the part of the child tax credit, earned income credit, American opportunity credit or adoption credit that exceeds their federal income tax. Comments closed on October 5, 2026, and on October 9, 2026 the IRS cancelled the October 14, 2026 public hearing because nobody asked to testify. The next step is final rules, which have no date yet.
What would change?
Under the current rules, if your refundable credits are larger than your tax, the IRS pays you the difference. Under the proposed rules (REG-119882-25), that payout would be split off and called the refunded portion. A taxpayer who is not a citizen, national or qualified alien could still use the credits to bring their tax down to zero but would not receive the refunded portion as a refund, and it could not be applied to other debts either.
| Rule | Under the proposed regulations |
|---|---|
| Credits covered | Child tax credit (the additional child tax credit part), earned income credit, American opportunity credit, adoption credit |
| What is blocked | Only the amount of those credits above your federal income tax |
| Who still gets it | US citizens, US nationals and qualified aliens; on a joint return, one such spouse is enough |
| When status is checked | On the date you file the return that first claims the credit |
| How you show it | A declaration under penalty of perjury on Schedule 3-A or another form the IRS sets |
| Not affected | Premium tax credit and refunds of tax withheld from pay |
| Starts | Tax years ending on or after the date the final rules are published |
Source: proposed regulations REG-119882-25 and IRS IR-2026-93.
In the proposal's own example, a taxpayer has a $5,120 refundable adoption credit and $648 of tax. The refunded portion is $4,472, and a taxpayer who is not a qualified alien would not receive it. $250 of tax withheld from the same taxpayer's wages would still be refunded.
Who is affected?
Taxpayers who can claim these credits but are not on the PRWORA list of qualified aliens. That list covers green card holders, refugees, people granted asylum, people paroled into the US for at least a year and a few other groups. It has no category for people on temporary visas, and Treasury's estimate of who is affected draws on Social Security, immigration and Homeland Security data, including counts of nonimmigrants living in the US. The credits generally already require a valid Social Security number, so the change reaches people who have one.
Treasury estimates that for 2026, 49 million returns will claim at least one of the four credits and 24 million will have a refunded portion. Of those, 200,000 to 700,000 taxpayers would not qualify to receive it. A married couple filing jointly keeps the full refund if either spouse is a citizen, national or qualified alien.
When would it apply?
The rules would apply to tax years ending on or after the day the final rules are published in the Federal Register. If that happens by December 31, 2026, it would cover returns for 2026, filed in the 2027 filing season. Your status is checked on the day you file the return that first claims the credit, so a person who becomes a qualified alien before filing (or before an amended return that first claims the credit) can receive the refunded portion.
What should you do?
When the rules take effect, anyone claiming one of these credits with a refunded portion would sign a declaration under penalty of perjury that they are eligible to receive it, on Schedule 3-A or another form the IRS names.
Do TaxWren's calculators reflect this?
Not yet, because the rules are only proposed. The income tax calculator, the take-home pay calculator and the 1099 tax calculator include the refundable additional child tax credit for everyone. We are following the rules and will add a way to leave out the refunded portion if they become final.
Sources
- IRS: IR-2026-93: Treasury, IRS proposes rules to protect refundable tax credits (official)
- Federal Register: Application of PRWORA to the refunded portion of certain refundable tax credits, proposed rule (REG-119882-25) (official)
- Federal Register: Hearing cancellation (REG-119882-25) (official)
Figures come from the official documents listed above. See our methodology and editorial policy. This article is general information, not tax advice.
Frequently asked questions
Who is a qualified alien for the child tax credit refund?
Under the proposed rules, the same groups as for other federal benefits under the 1996 welfare law (PRWORA). They include green card holders, people granted asylum, refugees, people paroled into the US for at least a year, people whose deportation is withheld, Cuban and Haitian entrants, citizens of Compact of Free Association countries living in the US, and certain abuse victims.
Do I lose the whole child tax credit if I am not a qualified alien?
No. Under the proposal you can still use the credit to bring your federal income tax down to zero. You lose only the amount that would be paid out to you beyond your tax, which for the child tax credit is the additional child tax credit.
What if only one spouse is a citizen or green card holder?
On a joint return, one spouse who is a US citizen, US national or qualified alien is enough. The other spouse is treated as a qualified alien, and the couple gets the full refund.
Does this apply to my 2026 tax return?
Only if the rules are published as final by December 31, 2026. They apply to tax years ending on or after the date the final rules appear in the Federal Register, so final rules published later would start with the next tax year.
Is the premium tax credit affected?
No. The proposal leaves out the premium tax credit, because the health care laws already set their own immigration-status rules for it.
Run your own numbers
- Income tax calculator
Federal and state income tax owed for 2026.
- Substantial presence test calculator
US tax residency for non-citizens: the 183-day substantial presence test with exempt years for F-1, J-1 and M-1 students and J-1 researchers, and the student FICA exemption.