Treasury Proposed New Rules on Who Can Claim Refundable Credits: What Changes If You File With an ITIN or Mixed Status

On August 19, 2026, the Department of the Treasury and the IRS issued proposed regulations that would change who can receive the refundable portion of four major federal tax credits. If you file with an Individual Taxpayer Identification Number (ITIN), or you live in a household where some members have Social Security numbers and others do not, this proposal may directly affect how much money you see on your tax return, and how you handle any tax debt you are already carrying.

What the Proposal Actually Says

The proposed rule, identified as REG-119882-25, was published in the Federal Register on August 20, 2026. It applies the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, commonly called PRWORA, to the refundable portions of four specific credits.

The proposed regulations apply PRWORA to four individual income tax credits: the adoption tax credit, the child tax credit, the American Opportunity Tax Credit, and the earned income tax credit.

The key word here is “refundable.” A refundable credit is one where, if the credit is worth more than the taxes you owe, the IRS sends you the difference as a cash refund. Tax credits provide a dollar-for-dollar reduction in tax liability. When a tax credit is refundable, any portion of the credit that exceeds the taxpayer’s liability may be refunded to the taxpayer.

The IRS and Treasury have issued a notice of proposed rulemaking that would classify the refunded portion of certain federal refundable tax credits as a “federal public benefit” under the Personal Responsibility and Work Opportunity Reconciliation Act of 1996. That classification matters because federal law restricts who can receive federal public benefits.

This is not a final rule. The proposal does not create new tax credits or eliminate existing credits. Rather, it clarifies who may receive the refundable portion of certain credits under federal law. But the direction is clear, and if you owe back taxes or are counting on a refund to offset what you owe, you need to understand what is at stake.

The Four Credits and Who Is Now Being Scrutinized

Under the proposed rule, individuals who are not considered “qualified aliens” under PRWORA would become ineligible to receive the refundable portion of four specific federal income tax credits: the adoption tax credit, the American Opportunity Tax Credit, the child tax credit, and the earned income credit.

The taxpayer must be a U.S. citizen, U.S. national, or qualified alien on the date the taxpayer files the federal income tax return first claiming the affected credit. Qualified aliens include lawful permanent residents, asylees, refugees, and certain other groups defined or specified under PRWORA.

Critically, the rule targets only the cash refund portion of each credit, not every dollar. Taxpayers could still use the credits to reduce their federal tax bills to zero, but they could not collect excess amounts as cash. So if you owe taxes and the credit wipes out that debt, you keep that benefit. What you could lose under this proposal is a refund check for any amount left over.

The Treasury Department and IRS proposed regulations on August 19 that would block an estimated 200,000 to 700,000 noncitizen filers from receiving refund checks tied to these four federal tax credits. Projected savings range from $700 million to $2.6 billion for 2026 alone.

What This Means for Mixed-Status Families

A mixed-status family is one where some household members, often a U.S.-born child or a spouse who is a citizen or permanent resident, have Social Security numbers, while other members file with an ITIN. These households have historically been eligible for some refundable credits depending on the circumstances. The proposed rule adds a new layer of complexity on top of changes already made by recent tax legislation.

Under the proposed regulations, filing jointly does offer some protection. On a joint return, only one spouse must be a U.S. citizen, U.S. national, or qualified alien. That means a married couple where one spouse is a citizen or lawful permanent resident and the other files with an ITIN may still be able to satisfy the immigration-status requirement for the refundable portion, depending on your circumstances.

However, separate changes made by the One Big Beautiful Bill Act have already tightened identification requirements for the Child Tax Credit specifically. Under the new tax law, if a parent uses an ITIN rather than an SSN, the family is generally ineligible for the CTC, even if the child has a valid SSN. For a joint return, at least one spouse must have a valid SSN.

These two sets of rules, the proposed PRWORA regulations and the existing SSN requirements under the new tax law, operate differently and affect different aspects of eligibility. The intersection of the two can be confusing, and getting it wrong could mean missing credits you do qualify for, or claiming credits that trigger IRS scrutiny.

The New Declaration Requirement

Even if you are eligible under the proposed rule, claiming the refundable portion of these credits would come with a new obligation. Under the proposed regulations, each individual, or one spouse in the case of a joint return, claiming an affected refundable tax credit that results in a federal public benefit would be required to provide a declaration under penalty of perjury stating that the individual is a U.S. citizen, U.S. national, or qualified alien who is eligible to receive the claimed refund.

Filing a false declaration under penalty of perjury is a serious matter. If you are unsure of your immigration classification under federal law, or if your status has changed since you last filed, this is not a box to check without first getting professional guidance.

The proposed regulations would apply to tax years ending on or after the date the regulations are published as final regulations. That means your past returns are not automatically affected, but every return you file after a final rule is issued would need to meet the new standard.

Where the Rulemaking Stands Right Now

The comment period on Treasury’s proposal closed on October 5, 2026, and the public hearing set for October 14 was cancelled because nobody asked to testify. That leaves one step: a final rule.

In other words, the public input phase is complete. Treasury will now review the written comments that were submitted and decide whether to finalize the rule as proposed, modify it, or withdraw it. No date has been set for a final rule. Until a final rule is published, the proposal has no legal effect on your return. But given that the comment period has closed with no hearing, the path to finalization is shorter than it was even a few weeks ago.

If you are behind on filing or carry IRS debt, the timing matters. Credits you may have been planning to use to reduce what you owe could look very different once a final rule is in place.

If You Owe Back Taxes and Were Counting on These Credits

Many people who file with an ITIN or live in mixed-status households are also dealing with unfiled returns, IRS notices, or back tax balances. Refundable credits are sometimes the only offset available to reduce a debt before the IRS moves to collections. If this rule is finalized in a way that limits your refundable credit eligibility, your ability to reduce a tax balance through filing alone could shrink.

That makes it more important, not less, to get your filing status sorted out now, before a final rule takes effect. There are resolution options available for people who owe the IRS, ranging from installment agreements to offers in compromise, each with different eligibility requirements depending on your circumstances. No outcome is guaranteed, and what may be available to you depends entirely on your specific financial situation.

Here is what makes sense to do right now, regardless of how the rule ultimately lands:

• Get current on your filing. Unfiled returns limit your options and can trigger automatic penalties and interest. Filing, even if you owe, stops the penalties for failure to file from continuing to grow.
• Know your immigration classification. Whether you are a lawful permanent resident, an asylee, a refugee, or another category affects whether you could qualify under the proposed standard. This is not always straightforward, and it is worth confirming with a qualified professional.
• Understand what credits you actually qualify for. The EITC, CTC, AOTC, and adoption credit all have existing eligibility rules beyond the immigration question. An ITIN filer who also lacks a qualifying SSN for a dependent may already be ineligible for some credits under current law, separate from this proposal.
• Do not wait for the final rule to act on tax debt. IRS collection activity does not pause while regulations are being finalized. If you have received notices or are worried about liens or levies, getting professional help now is far better than waiting.

How Clear Start Tax Can Help

At Clear Start Tax, we work with individuals and families who owe the IRS, are behind on filing, or are trying to understand how a changing tax landscape affects their situation. We are not a referral network or a marketplace. We are a tax resolution firm, and we handle your case directly.

If you file with an ITIN, if your household includes members with different immigration statuses, or if you are trying to figure out whether refundable credits you counted on are still available to you, a consultation with our team can help you understand where you stand. And if you also carry IRS debt, we can walk you through the resolution options that may be open to you based on your actual circumstances.

The rules are shifting. Getting a clear picture of your situation now puts you in a much stronger position, whatever the final regulations say.