IRS proposes new certification for refundable tax credits

Treasury and the IRS have proposed a significant change to individual tax filing: taxpayers seeking the refundable portion of four credits would have to establish that they are U.S. citizens, U.S. nationals or qualified aliens under federal immigration law. The proposal, published August 20, 2026, would also require a declaration under penalty of perjury on the return. It is a proposed regulation—not a current change to filing law—but it could reshape how millions of credit claims are screened once finalized.

The IRS announcement says the rules would apply the 1996 Personal Responsibility and Work Opportunity Reconciliation Act to the refunded portion of the adoption tax credit, child tax credit, American opportunity tax credit and earned income tax credit. Treasury and the IRS characterize that excess as a federal public benefit rather than an ordinary refund of taxes previously paid.

Under the proposal, eligibility would be measured on the date the taxpayer files the federal return that first claims the affected credit. The filer would have to attest to eligibility under penalty of perjury. On a joint return, only one spouse would need to satisfy the citizenship, nationality or qualified-alien test.

The proposal would not erase the underlying credits for everyone who fails the new status test. The Federal Register text distinguishes between the part of a credit that reduces tax and the excess that produces a payment from the government.

That distinction matters in practice. A taxpayer who otherwise qualifies could still use an affected credit to reduce federal income-tax liability, while losing the portion that exceeds that liability. For example, the 2025 child tax credit can reach $2,200 per qualifying child, with a refundable additional child tax credit generally capped at $1,700 per child. The American opportunity tax credit is capped at $2,500 per student, with 40% refundable. Those figures are statutory parameters described in the proposed rule, not new amounts created by this action.

The proposed regulations would generally apply to tax years ending on or after the date the regulations are published as final. That means the proposal itself does not immediately change the filing of 2025 returns during the 2026 filing season, nor does it automatically authorize the IRS to deny current claims under the new framework.

If finalized, however, return preparation would likely require a new status certification and additional documentation or workflow controls. Preparers would need to identify which spouse satisfies the test on joint returns, while software would need to distinguish the refundable and nonrefundable portions of each affected credit. Taxpayers who rely on the EITC, child-related credits or education credits could see a larger refund difference than their headline credit amount suggests because the proposal focuses on the excess over tax liability.

The published proposed rule sets October 5, 2026, as the deadline for written comments and requests to speak. A public hearing is scheduled for October 14, 2026, but the notice says it may be canceled if no hearing outlines are received by the comment deadline.

The next consequential step is therefore not a new form or immediate filing prohibition, but the final rule. Until Treasury and the IRS complete that process, taxpayers should treat the proposal as a development to monitor rather than as a settled instruction for preparing a current federal return.