Overview
- The Treasury Department and IRS issued the proposed regulation on Wednesday that would treat the refunded portions of the adoption credit, child tax credit, American Opportunity credit, and Earned Income Tax Credit as federal public benefits.
- The agencies cite a Department of Justice Office of Legal Counsel analysis as the legal basis for the change and say it would bar refunds to people who are not U.S. citizens, U.S. nationals, or qualified aliens.
- Only the refunded portion would be affected; taxpayers could still use nonrefundable portions of the credits to offset federal income tax liability, and on joint returns one spouse must meet the eligibility standard.
- The administration estimates savings between roughly $700 million and $3 billion and says nearly one million people could lose refunded benefits, while independent experts warn the rule could touch several million noncitizen workers including asylum applicants, TPS holders, and DACA recipients.
- A 45-day public comment period is open and a public hearing is set for October 14, after which the agencies may revise the proposal, finalize a rule that would apply to tax years ending on or after its publication, and face likely legal challenges.