Proposed IRS Rule Could Reduce Tax Refunds for Immigrant Families: Why LAMA Opposes It

For a family living paycheck to paycheck, a tax refund can help keep the refrigerator stocked, cover rent, or repair the car that makes getting to work possible. A proposed federal regulation could take away part of that support from some immigrant taxpayers who otherwise qualify for it.

Lutheran Advocacy Ministry Arizona (LAMA) opposes the proposal. Our public comment urges the Department of the Treasury and the Internal Revenue Service to withdraw it, emphasizing the consequences for children, working families, and communities.

What would change?

The proposal would classify the refunded portions of four tax credits as “federal public benefits” under the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, commonly called PRWORA:

• Earned Income Tax Credit, which supports eligible workers with lower incomes.

• Child Tax Credit, which helps eligible families meet the costs of raising children.

• American Opportunity Tax Credit, which helps with eligible college expenses.

• Adoption Tax Credit, which helps offset eligible adoption costs.

This would add PRWORA’s immigration-status restrictions to the credits’ existing tax-law requirements. The change concerns the refunded portions of these credits—the support available beyond what offsets a taxpayer’s federal income tax liability.

Importantly, some lawfully present immigrants could lose eligibility. Having permission to live or work in the United States does not necessarily place someone within PRWORA’s separate “qualified” immigration categories.

What’s at stake nationally?

Treasury and the IRS estimate that 200,000–700,000 taxpayers could become ineligible for the affected refunded amounts for tax year 2026. Their analysis estimates $700 million–$2.6 billion in disallowed credits, while acknowledging substantial uncertainty about the number of affected taxpayers and the amounts they would lose.

The consequences would reach beyond individual tax filers. Children—including U.S. citizen children—share their families’ household budgets. Less money available to a parent can mean less money for food, housing, school supplies, and other necessities.

LAMA also raises concerns about confusion. Taxpayers and preparers would face an additional immigration-classification question, and eligible families could hesitate to claim credits because they fear making a mistake. Restrictions on education and adoption credits could create additional financial barriers for affected students and families.

The Arizona spin: food, cooling, transportation, and community support

The proposal does not provide an Arizona-specific estimate of affected households. We should not assume that national figures tell us precisely how many families here would lose support.

But the practical concerns are clear. In Arizona, electricity for cooling is essential to health and safety. Reliable transportation often determines whether someone can reach work, child care, or medical appointments. When household resources shrink, families may have to choose among these expenses and groceries.

LAMA’s concern is that reducing tax-credit support could deepen hardship and increase requests for help from congregations, food pantries, and community organizations. Those ministries provide essential assistance, but their resources are limited. Emergency charity cannot reliably replace policies that help families maintain sufficient income.

LAMA’s public comment: protecting our neighbors’ dignity

Our comment connects this proposal to LAMA’s work on hunger and poverty and our Lutheran calling to love our neighbors. It asks Treasury and the IRS to protect working families, consider the consequences for children, respect the eligibility framework Congress established in the tax code, and avoid confusing new barriers.

As the comment states:

“A child’s need for adequate nutrition and a stable home does not diminish because a parent falls outside a particular immigration classification.”

We also call on the agencies to examine effects on food insecurity, housing stability, and community assistance—not simply reductions in federal payments.

What happens next?

The public comment deadline was October 5, 2026. This remains a proposed rule, rather than a final regulation; the proposal itself does not change a taxpayer’s current eligibility. Treasury and the IRS must consider the comments before deciding how to proceed.

Read the proposed regulation and follow its progress. Congregations can continue learning about the issue, sharing accurate information, and explaining to members of Congress why stable household income matters to their communities.

For LAMA, the guiding question is straightforward: Does this policy help our neighbors meet their basic needs and live with dignity? We believe this proposal moves us in the wrong direction.