IRS Moves to Cut Illegal Immigrants' Tax Credits

The Trump administration proposed new rules Wednesday that would bar illegal immigrants from collecting the refundable — cash-back — portion of four federal tax credits.

The credits affected are the child tax credit, the American opportunity tax credit for students, the adoption tax credit and the earned income tax credit, according to The Washington Times.

Under the proposal, only citizens and certain foreigners could claim the refundable portion, Bloomberg reported: lawful permanent residents, asylum recipients and refugees.

IRS chief executive Frank J. Bisignano said in the official proposal that savings could reach as much as $2.6 billion a year. The New York Post reported the administration estimates the change saves taxpayers about $3 billion.

What Actually Changes

Each of the four credits is refundable, meaning that if the credit is worth more than the taxes a filer owes, the IRS pays out the difference in cash.

Under the proposal, illegal immigrants could still claim the regular credit against taxes owed — but would no longer be paid the extra amount, The Washington Times reported.

The amounts are not small. Up to $5,000 of the adoption tax credit is refundable, for example. Each credit has its own income eligibility rules and payout limits.

The bar would not apply to migrants granted asylum or refugee status, or to other quasi-legal categories such as those granted "parole" into the U.S. for at least a year.

Two things are carved out. The premium tax credit under Obamacare is untouched, because illegal immigrants are already supposed to be blocked from it under the Affordable Care Act and last year's One Big Beautiful Bill budget law. The new Trump Accounts and the $1,000 one-time payment for eligible children are also exempt, because those accounts are limited to U.S. citizens.

The Legal Theory

Bisignano said he is making good on a 1996 welfare reform law that limited the public benefits immigrants — and illegal immigrants in particular — can claim.

That law applies to cash benefits. For decades the government did not treat tax credits as cash benefits, even when they were worth thousands of dollars a year to recipients.

The first Trump administration moved to change that reading, arguing the law does cover refundable tax credits, or at least the portion that pays money out rather than reducing a tax bill.