IRS proposes stripping refundable tax credits from 200,000 to 700,000 taxpayers over immigration status

The IRS and the Treasury Department published a proposed regulation that would block taxpayers who do not meet the legal definition of "qualified alien" from receiving the refundable portion of four federal tax credits.

The agency estimates that 49 million taxpayers will claim at least one of the affected credits in the 2026 tax year, and that roughly 24 million will receive a refundable portion. Between 200,000 and 700,000 of them could lose that money under the rule, which the IRS itself calls an approximate estimate.

The proposal, numbered REG-119882-25 and published in Internal Revenue Bulletin 2026-38, classifies the refundable portion of those credits as a federal public benefit under the 1996 welfare reform law, which bars payment to non-qualified aliens.

The same IRS announcement confirmed routine inflation adjustments for the 2026 tax year, raising the standard deduction to $32,200 for married couples filing jointly and $16,100 for single filers. Those figures reflect indexing under the law the Trump administration called the One Big Beautiful Bill.