The Child Tax Credit and the Earned Income Tax Credit are built so that families who earn too little to owe much income tax still get the help. When the credit is bigger than the tax bill, the rest comes back as a refund. About 24 million taxpayers are expected to get money back that way for 2026, counting the two other credits this rule also covers.

On August 19, 2026, the Trump administration moved to take that refund away from families in which the parents have the wrong kind of immigration status — even when they are living and working here legally, and even when their children are U.S. citizens.

The Treasury Department and the IRS announced a proposed rule that would treat the refunded part of four tax credits as a "federal public benefit" under the 1996 welfare law. The four are the Child Tax Credit, the Earned Income Tax Credit, the credit for college costs, and the credit for adopting a child. Treasury titled the announcement: "Treasury, IRS Propose Rules to Protect Refundable Tax Credits from Abuse by Illegal Aliens."

The Center on Budget and Policy Priorities estimates the rule would take the Child Tax Credit and/or Earned Income Tax Credit refund away from roughly 1 million people, including hundreds of thousands of U.S. citizen children.

Who loses the money

A family could still use these credits to bring its tax bill down to zero. What it loses is everything past zero — the part that comes back as a check. A Tax Policy Center researcher told CNBC that means lower-income families take the biggest hit, because they owe little tax and get most of the credit as a refund.

Only people with a short list of "qualified" statuses under the 1996 law would keep the refund: citizens, green card holders, refugees, people granted asylum and a few others. According to the budget center, the people cut off would include:

• Children granted special immigrant juvenile status, who have been abused, abandoned or neglected by one or both parents
• Survivors of serious crimes who cooperated with law enforcement
• People with Deferred Action for Childhood Arrivals (DACA), who were brought here as children
• People with Temporary Protected Status, whose home countries have been hit by armed conflict or disaster
• Many others living and working lawfully in the United States

Look at who that is. These credits already require a Social Security number — the proposal itself says taxpayers "are generally required to have a valid SSN" to be eligible. So in practice, the Institute on Taxation and Economic Policy explains, the rule restricts immigrants who are lawfully present, have been issued Social Security numbers valid for work, and file their taxes.

That institute studied just one of the affected groups, DACA recipients, and found:

• 158,000 people in DACA families would be harmed.
• 90,000 of them are U.S. citizen children — 57 percent of everyone affected.
• The average affected family would lose $4,560 a year, equal to 13 percent of its $35,000 income.
• The average affected DACA recipient has lived in the U.S. for 28 years.

It also warns that as many as 30 of the 32 states with their own Earned Income Tax Credit are at risk of passing the same restriction through to their state credits.

Treasury's own count leaves out the kids

The government's proposal estimates that 200,000 to 700,000 taxpayers would lose the refund for 2026. It puts the average refunded amount, across everyone who gets money back from these credits, at $3,656 — and the total taken at $0.7 billion to $2.6 billion.

It also admits Treasury and the IRS "do not have data on a taxpayer's qualified alien status" to count the people affected precisely.

The budget center's researchers say the 200,000-to-700,000 figure counts only the adults who file the return, when everyone in the family loses. In their words, "it is wrong to leave out the impact on the children in families who will now have fewer resources available to provide for their needs."

No administration has done this in 30 years

The 1996 welfare law barred many immigrants from "federal public benefits" such as food assistance and public housing. For three decades, no administration treated a tax refund as one of them.

The Trump administration's own proposal concedes the point: "The Treasury Department and the IRS have not previously considered individual refundable income tax credits to constitute Federal public benefits." The change rests on an executive order Trump signed on February 19, 2025, and on Justice Department legal opinions from 2020 and November 2025.

"For 30 years, no administration, Democratic or Republican, has treated refundable tax credits this way," the budget center's researchers wrote.

The Institute on Taxation and Economic Policy adds that during Trump's first term, his own Department of Homeland Security laid out reasons tax credits should not be covered by the welfare law — including the complications for families whose members have different immigration statuses.

Republicans in Congress already cut these families once

Congress has written the immigration rules for these credits itself, several times. The 1996 law required a work-authorized Social Security number to claim the Earned Income Tax Credit — which, the budget center points out, there would have been no reason to do if lawmakers believed the welfare-law ban already covered tax credits.

Then Republicans narrowed the Child Tax Credit twice. Their 2017 tax law took it away from immigrant children who didn't have Social Security numbers. Trump's 2025 budget bill went further: a family can now claim the credit only if at least one parent has a Social Security number, even when the child is a citizen. The Institute on Taxation and Economic Policy estimates about 2.7 million American citizen children have already lost the Child Tax Credit because of that change.

This rule would stack a second cut on top of the first — one Congress never voted on. The institute calls the proposed rule "even more punitive" than what Congress agreed to.

Every family claiming a refund gets a new question

The rule doesn't only touch immigrants. Anyone who wants the refunded part of these credits would have to declare, under penalty of perjury, that they or their spouse is a citizen, a U.S. national or a "qualified alien." The IRS has already drafted the new form, Schedule 3-A, which asks: "Are you or your spouse a U.S. citizen, U.S. national, or qualified alien?"

The proposal reminds filers that willfully putting false information on a tax return is a felony, punishable by up to three years in prison and a $100,000 fine.

Whether someone counts as a "qualified alien" turns on technical immigration rules that, the budget center notes, are not easy for filers — or tax preparers — to understand. It warns the rule "would likely create fear and confusion" and may lead families who are still eligible to skip the credits.

That fear has a basis. On September 8, 2026, a federal appeals court upheld an order halting a procedure the IRS set up in the summer of 2025 to hand taxpayer information to ICE. The court found the procedure failed to make sure ICE's requests met the law's requirements — and the IRS had turned over more than 47,000 records before a judge stopped it.

And it lands the same month as a separate rule, taking effect September 18, that lets immigration officers count a family's use of Medicaid, CHIP and food stamps against a green card application.

The children pay for it

A child's citizenship doesn't change under this rule. What changes is how much money the household has to raise that child.

That money matters. A review of the research on child tax credits in the U.S., the U.K. and Canada found "overwhelmingly" that they help children — from birth weight and childhood health to school achievement, education, wages and poverty as adults.

What happens next

The rule is not final. Public comments are open until October 5, 2026, and a public hearing is set for October 14. The rule would apply to tax years ending on or after the day it is finalized. As CNBC explained, if that happens this year, it would hit 2026 tax returns filed next year.

What the record shows

The Trump administration's Treasury Department and IRS have proposed treating Child Tax Credit and Earned Income Tax Credit refunds as a "federal public benefit" under the 1996 welfare law — something the proposal itself says the agencies had not done before. In practice it would cut off working families with DACA, Temporary Protected Status and other lawful statuses who have Social Security numbers and file taxes. Treasury counts 200,000 to 700,000 taxpayers losing $0.7 billion to $2.6 billion. The Center on Budget and Policy Priorities counts roughly 1 million people, including hundreds of thousands of U.S. citizen children — on top of the roughly 2.7 million citizen children the Institute on Taxation and Economic Policy estimates already lost the Child Tax Credit under Trump's 2025 budget bill.

Source

Stephen Prager, Trump Treasury Would Strip Tax Refunds From Hundreds of Thousands of American Kids, Researchers Warn, Common Dreams, September 14, 2026. Photo by John Moore / Getty Images, via Common Dreams: children of immigrants wait to be picked up by their parents at a Connecticut community center, April 3, 2025.

Proposed rule: "Application of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 to the Refunded Portion of Certain Federal Refundable Tax Credits," REG-119882-25, Federal Register, August 20, 2026.