Refundable Tax Credits Are Public Benefits, Federal Regulations Should Recognize This
Key Findings
- Federal law and President Trump have made clear that taxpayer-funded benefits should not go to nonqualified aliens.
- Refundable tax credits are widely considered public benefits, but nonqualified aliens still take advantage of them.
- The federal government would save billions by more closely adhering to the law and President Trump’s executive orders.
Overview
President Biden’s border policies were disastrous, leading to a record number of illegal aliens entering the country and increasing the cost of welfare programs.1 Customs and Border Protection encountered more than 10 million illegal aliens during the four years President Biden was in office, with millions more entering the country undetected.2-3 To make matters worse, his administration released at least 5.6 million aliens into the country.4
President Trump worked quickly to turn the tide on this surge, signing executive orders to crack down on illegal crossings and end taxpayer-funded benefits for illegal aliens.5-6 Under the Trump administration, border crossings are now down by more than 90 percent.7-8 But even with this success, there are still more than 27 million illegal aliens living in the United States.9-11
Federal law prohibits nonqualified aliens, including illegal aliens, from receiving any federal public benefit.12 President Trump has already taken action to make it even clearer that government benefits should not be going to assist those who enter the country illegally.13
Despite this prohibition, refundable tax credits, which are widely viewed as public benefits, have been freely taken advantage of by nonqualified aliens, including illegal aliens. Congress and President Trump have worked together to make it more difficult for nonqualified aliens to receive these credits, but the Department of the Treasury should also address this issue to ensure that all public benefits are reserved for only qualified individuals.14
Congress and President Trump have worked to prevent illegal aliens from receiving welfare
Welfare programs were designed to serve the truly needy—those with physical or mental disabilities, the elderly, and low-income children.15-16
Congress further restricted welfare eligibility with the Personal Responsibility and Work Opportunity Act of 1996. This bipartisan legislation restricted means-tested public benefits to citizens and qualified aliens.17 Qualified aliens are generally legal residents who have been in the country for at least five years, refugees, and individuals granted asylum.18
Federal law prohibits nonqualified aliens, including illegal aliens, from receiving any public benefit, including grants, loans, welfare benefits, health or disability benefits, housing, food stamps, unemployment, or any other similar benefit.19 These restrictions apply “notwithstanding any other provision of law,” superseding other contradictory statutes.20
President Trump also signed executive orders to ensure that public benefits do not go to nonqualified aliens, and the generosity of the American people does not draw illegal aliens to the country.21-22
Some refundable tax credits are still going to illegal aliens
Despite the efforts of both Congress and the president, nonqualified aliens still find ways to receive public benefits. Regulations covering refundable tax credits are not based on the best reading of existing law and, as a result, tax credits are freely given to nonqualified aliens, including illegal aliens. Three refundable tax credits are in dire need of review to bring them back in line with federal law.
Child Tax Credit
The Child Tax Credit was created in 1997 and was expanded several times in the following years.23-24 The Child Tax Credit was made refundable, meaning tax filers can receive the credit even if they pay a smaller amount in taxes or even no taxes at all.25-26 In 2025, the refundable portion is valued at $1,700 per child.27
Despite a statutory prohibition, IRS regulations allowed aliens to claim the Child Tax Credit with either an individual taxpayer identification number or a Social Security number for themselves or their dependents.28 An individual taxpayer identification number is easily obtained, with 5.8 million active at the end of 2022, most of whom are illegal aliens.29-30 In 2017, Congress temporarily restricted claims to qualified children who have a work-authorized Social Security number, despite the fact that many illegal aliens granted temporary stays of removal are given such Social Security numbers.31-32
Without action, these regulations were set to revert back to allowing claims with as little as an individual taxpayer identification number in 2026.33 Thankfully, President Trump worked with Congress to require a Social Security number for at least one parent in order to qualify for this tax credit moving forward.34
Earned Income Tax Credit
In 2025, this credit can be worth more than $8,000 and is fully refundable.35 The average Earned Income Tax Credit claimed in 2023 was $2,743.36
Federal law requires that Earned Income Tax Credit recipients have a work-authorized Social Security number.37 But regulations allow those who received a Social Security number due to Deferred Action for Childhood Arrivals, Deferred Enforced Departure, or Temporary Protected Status programs to qualify for the tax credit.38
American Opportunity Tax Credit
The American Opportunity Tax Credit provides a credit of 100 percent for the first $2,000 of qualified tuition and related expenses, and an additional 25 percent credit for the next $2,000 of qualified expenses.39 Up to $1,000 of the credit is available as a refundable tax credit.40
In addition to the prohibition on nonqualified aliens receiving public benefits, federal law expressly prohibits these individuals from receiving postsecondary education benefits, which the American Opportunity Tax Credit provides.41 Congress recently passed legislation requiring a Social Security number in order to receive this credit.42
Refundable tax credits are public benefits
Since these refundable tax credits use taxpayer money to give benefits, in the form of cash deposits, they are widely considered public benefits.
State and federal courts have classified refundable tax credits as public assistance benefits under IRS rules because they are granted unrelated to the amount of taxes owed.43-52 Federal courts have classified refundable tax credits as “public assistance,” “means-tested public assistance,” “items of social welfare legislation,” “social welfare relief,” “relief to low income workers who have dependent children,” “poor relief payment,” and “entitlement programs.”53-61 All of these are different ways to refer to these credits as public benefits.
Other agencies, like the Department of Health and Human Services, have also recognized that refundable tax credits are “public benefits for low-income households.”62-64
All of this shows that refundable tax credits should be considered a public benefit since they are payments or assistance provided to individuals by federal taxpayers. By not restricting refundable tax credits, Treasury regulations are out of compliance with the superseding restriction that nonqualified aliens be prohibited from receiving federal public benefits. It is time to stop playing games and call a spade a spade.
This is a prime opportunity to save taxpayers billions and better match the will of Congress and the president
Use of these refundable tax credits by nonqualified aliens adds up to billions of dollars in costs to federal taxpayers. For instance, a Treasury report shows that it paid more than $4 billion in Child Tax Credits to illegal aliens using individual taxpayer identification numbers in 2010.65 Updating this figure arrives at annual costs of $5.4 billion.66 The Earned Income Tax Credit is estimated to cost roughly $3 billion annually for payouts to illegal aliens alone.67
Both Congress and President Trump have clearly expressed that public benefits should not go to nonqualified aliens.68-69 Transferring billions from federal taxpayers to nonqualified aliens through refundable tax credits is unacceptable.
In November 2025, the Treasury announced that it would reclassify the Child Tax Credit, Earned Income Tax Credit, and American Opportunity Tax Credit, among others, as federal public benefits.70 Doing so as soon as possible would save taxpayers billions.
The Bottom Line: The Department of the Treasury is reclassifying refundable tax credits as a public benefit and prohibiting nonqualified aliens, including illegal aliens, from receiving them. It should finalize this action as soon as possible.
Congress has restricted means-tested public benefits to citizens and qualified aliens, and courts and federal agencies widely view refundable tax credits as public benefits. Despite the restriction, federal taxpayers spend billions on refundable tax credits for nonqualified aliens, including illegal aliens. Congress passed legislation to help address this problem, and now the Treasury should fix it by clearly defining federal public benefits to include these refundable tax credits.
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