The Internal Revenue Service and Treasury Department issued proposed regulations on August 19 that would restrict the refunded portions of four individual income tax credits to U.S. citizens, nationals, and qualified aliens.
The proposal applies to the adoption tax credit, child tax credit, American opportunity tax credit, and earned income tax credit. Under the regulations, the refunded portion—defined as the amount of a refundable credit that exceeds a taxpayer's income tax liability—would be limited to eligible taxpayers.
According to the agencies, only U.S. citizens, U.S. nationals, and qualified aliens, including lawful permanent residents, asylees, and refugees, can receive these refunded portions. The proposal follows a legal analysis by the Department of Justice concluding that such refunded credits constitute federal public benefits.
Taxpayers would need to declare under penalty of perjury that they meet the eligibility requirements. On joint returns, only one spouse must be a U.S. citizen, national, or qualified alien.
Taxpayers ineligible for the refunded portion may still claim the non-refundable portion of the credits, which generally offsets their income tax liability.
The regulations would apply to tax years ending on or after their publication as final rules. The agencies are seeking public comments on the proposal.