Proposed IRS Refundable Tax Credit Rules: What to Know Now

The proposed IRS refundable tax credit rules could affect the refundable portion of several federal income tax credits. The IRS has issued proposed regulations that could affect the refundable portion of several federal income tax credits for individuals who do not meet the definition of a “qualified alien” under federal law.

The proposal concerns the refundable portion of certain credits, including the Child Tax Credit, Earned Income Credit, American Opportunity Tax Credit, and Adoption Tax Credit. Under the proposed rules, refundable amounts would be treated as a federal public benefit under the Personal Responsibility and Work Opportunity Reconciliation Act.

Importantly, the proposal does not necessarily eliminate the entire credit. If a taxpayer otherwise qualifies, the portion of the credit that reduces their federal income-tax liability could still be available. The restriction would apply to the amount refunded after the taxpayer’s tax liability has been reduced.

The proposed regulations explain that eligibility would generally require the taxpayer to be a U.S. citizen, U.S. national, or “qualified alien.” Qualified aliens may include certain lawful permanent residents, refugees, asylum recipients, and other protected categories.

These rules are still proposed. According to the release, they would apply to tax years ending on or after the date the regulations are ultimately published as final regulations.

Immigration status and tax-credit eligibility can be complicated, particularly for families with different immigration statuses. If you are uncertain how proposed or existing tax rules may affect your return, professional review can help determine which credits may be available to you.

Whitnah CPA provides individual and business tax services throughout the United States.

This article is provided for general informational purposes and should not be considered individual tax or legal advice.