On August 19, 2026, Treasury and the IRS announced in IR-2026-93 proposed regulations concerning eligibility for the refunded portions of four individual income tax credits.
The proposal would apply provisions of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) to specified refundable credits. These rules are proposed, not final.
Which Credits the Proposal Covers
The proposed regulations address the refunded portions of:
- The adoption tax credit
- The child tax credit
- The American opportunity tax credit
- The earned income tax credit
Under the proposal, only the amount by which the affected refundable credits exceed the taxpayer’s income tax liability after applying those credits would be treated as a federal public benefit. A taxpayer who does not qualify for that refunded portion could still claim any portion of an affected credit that offsets income tax liability, if the taxpayer otherwise qualifies.
Proposed Eligibility Requirements
To receive the refunded portion of an affected credit, the IRS release says a taxpayer would need to be a U.S. citizen, U.S. national, or qualified alien on the date the federal income tax return first claiming the credit is filed. The release identifies lawful permanent residents, asylees, refugees, and certain other PRWORA-defined groups as examples of qualified aliens.
The taxpayer would also declare eligibility on the return under penalty of perjury. For a joint return, the proposal would require at least one spouse to meet the citizenship, nationality, or qualified-alien condition.
These proposed conditions would supplement, not replace, the existing eligibility requirements for each credit.
When the Rules Would Apply
The proposed regulations would apply to tax years ending on or after the date final regulations are published. Treasury and the IRS are requesting public comments and hearing requests through the process described in the proposed regulations.
Until final regulations are issued and become applicable, taxpayers should use current law and current IRS instructions rather than treating the proposal as an existing filing requirement.
Why It Matters for Schedule C Filers
These are individual income tax credits, not Schedule C business deductions. However, self-employed taxpayers may claim one or more of the affected credits when they satisfy each credit’s requirements. If the proposal becomes final, eligibility for the refunded portion would also depend on the federal public-benefit conditions described above.
Schedule C filers should keep business records accurate because net self-employment income can affect a return and credit calculations. Immigration status and credit eligibility involve separate rules that may require professional advice.
Simple-C helps Schedule C filers keep business income and expenses organized — so tax-time records are easier to review while the applicable credit rules are confirmed separately.
This article provides general information, not tax, legal, or immigration advice. The regulations discussed are proposed and may change before becoming final. Confirm current rules with the IRS and qualified professionals.