WASHINGTON (AP) — The U.S. Treasury Department said Thursday it plans to reclassify certain refundable tax credits as “federal public benefits,” which will bar some immigrant taxpayers from receiving them, even if they file and pay taxes and would otherwise qualify.
Tax experts say immigrants brought to the U.S. illegally by their parents as children, known as DACA (Deferred Action for Childhood Arrivals) recipients, and immigrants with Temporary Protected Status are most likely to be affected by the planned change. Foreign workers and student visa holders as well as some families with children who are U.S. citizens could also be affected, depending on how the rule is written, they say.
The Treasury Department’s announcement was the latest sign of how the Trump administration has been taking a “ whole of government ” approach when it comes to immigration enforcement and looking to departments across the federal government — not just Homeland Security — to come up with ways to help carry out the president’s hardline immigration agenda.
The Treasury said in its announcement that it plans to craft new rules affecting the refunded portions of certain individual income tax credits, including the Earned Income Tax Credit, the Additional Child Tax Credit, the American Opportunity Tax Credit and the Saver’s Match Credit.
The rule-making would redefine the tax credits as “federal public benefits” within the meaning of Personal Responsibility and Work Opportunity Reconciliation Act of 1996. As a result, many immigrants with U.S. work authorization would no longer be able to receive these benefits.
According to the Institute on Taxation and Economic Policy, undocumented immigrants who pay taxes are often not eligible for the same tax benefits as U.S. citizens, even though this group of people paid nearly $100 billion in federal, state, and local taxes in 2022.
For instance, undocumented immigrants are not eligible for Social Security retirement benefits or Medicare health insurance, even though they contribute billions of dollars to the federal payroll taxes that fund these benefits.
Critics slammed the change as a way to target immigrants as part of Trump’s broader policies.
“It’s 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,” said Daniel Costa, director of Immigration Law and Policy Research at the Economic Policy Institute.
“Implementing this will require determining who has status and who doesn’t, which is another way that the Trump administration will expand its deportation dragnet.”
The final regulation is expected to apply beginning in tax year 2026. Treasury Secretary Scott Bessent said in a news release that “we are enforcing the law and preventing illegal aliens from claiming tax benefits intended for American citizens.” Treasury sought a Justice Department reinterpretation of the law in order to craft the new rule, the agency said.
Carl Davis, research director of the Institute on Taxation and Economic Policy, said since people without work authorization already don’t qualify for these refundable tax credits, “the folks who are really going to be impacted are people who are really trying to do the right thing, the people authorized to work and paying their taxes.”
He said he believed the administration was trying to make the lives of taxpaying immigrants more difficult.
NYU Tax Law Center Policy Director Brandon DeBot said in a statement that the Treasury’s reinterpretation of the law in order to craft a new rule for the tax credits “overrides such clear provisions of the tax code.”
“Denying tax credits to immigrant families requires Congress to act explicitly,” DeBot said.
Davis said there probably wouldn’t be majority support for the move in Congress, which he said probably prompted the administration to act unilaterally on the issue instead.
“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,” he said.
Salomon contributed from Miami.