How do advances in tax law or recent court rulings (through 2025) affect tax benefits available to undocumented workers?
Executive summary
Recent federal actions through 2025 have tightened who can claim refundable tax credits and opened the door to tax-data sharing with immigration enforcement—moves likely to reduce benefits or deter filing by undocumented workers who previously paid an estimated tens of billions in taxes each year (ITEP, Tax Policy Center estimates) [1] [2]. Treasury and DOJ actions aim to classify refunded portions of EITC, AOTC, ACDCT/CTC and Saver’s Match as “federal public benefits” and propose regulations effective for tax year 2026; at the same time an IRS–ICE memorandum of understanding threatens tax privacy that advocates say encouraged ITIN filings [3] [4].
1. How undocumented workers currently interact with the tax code
Undocumented workers routinely pay federal, state and local taxes: many use ITINs or borrowed/false SSNs to file, and researchers estimate undocumented households paid roughly tens of billions—estimates include $59.4 billion to the federal government in 2022 and near‑$97–$100 billion across federal, state and local levels in recent analyses—while remaining ineligible for most federal benefits such as Social Security retirement or Medicare [1] [5] [2] [6]. The IRS issues ITINs so people who cannot obtain an SSN can comply with tax law; the Taxpayer Advocate Service is studying ITIN filers’ taxes and credits to quantify impacts and barriers [7] [8] [6].
2. Treasury’s push to treat refundable credits as “public benefits”
In 2025 the Treasury announced plans to issue proposed regulations clarifying that the refunded portions of certain tax credits—including the Earned Income Tax Credit (EITC), Additional Child Tax Credit (ACTC/CTC refund), the American Opportunity Tax Credit (AOTC) refundable portion, and Saver’s Match—are “federal public benefits” under PRWORA, reflecting a DOJ Office of Legal Counsel opinion; Treasury said final rules are expected to apply beginning tax year 2026 [3]. Administration statements framed the move as protecting taxpayer funds for citizens, and some press reports summarized Treasury’s goal to deny refunded portions to “illegal and other non‑qualified aliens” [3] [8] [9].
3. Practical effects if rules are finalized
If these rules are finalized, affected taxpayers who lack “qualified alien” status could be barred from receiving the refundable portion of those credits—reducing cash refunds for many low‑income households and mixed‑status families that include undocumented members. Tax guidance and commentary note that some credits already have SSN or residency requirements (for example EITC rules generally require SSNs) and that ITIN filers face limits in claiming certain credits today; Treasury’s reinterpretation would widen that exclusion to the refunded portions of credits that have historically reached some non‑citizen filers via ITINs or other pathways [10] [11] [3].
4. Privacy and filing deterrence: the IRS–ICE agreement
Separately, an IRS–ICE memorandum of understanding in 2025 created a framework for information sharing that departed from decades‑long IRS practice of protecting tax return confidentiality; critics argue this will deter ITIN filing and reduce tax compliance among undocumented communities, threatening revenue and access to credits for people who continue to file [4] [12] [13]. News reporting and legal observers record lawsuits and advocacy warnings that trust in the tax system could fall—leading people to stop filing and thus forfeit whatever credits they might otherwise receive [12] [14].
5. State-level variation and countervailing trends
While the federal push narrows eligibility, an opposite trend exists at the state level: several states have enacted inclusive EITCs or child‑credit designs that allow children without SSNs to qualify for state credits, and some states explicitly extend certain tax reliefs to non‑citizen residents—so impacts will vary geographically and by credit type [1] [15]. Available sources document that roughly one‑third of states with state EITCs and many states with CTCs wrote laws to be inclusive of children without SSNs, keeping a patchwork of access across the country [1].
6. Competing viewpoints and political context
Treasury and the White House framed rules as closing “loopholes” and protecting taxpayer resources for citizens [9]. Advocates, tax researchers and some reporters counter that many undocumented filers have used ITINs to comply with tax law and that excluding refundable credits—or sharing data with immigration enforcement—would be punitive, reduce compliance, and cut revenues while worsening economic hardship for low‑income families [4] [12] [6]. Courts have already been involved: reporting indicates at least one federal judge has limited IRS cooperation with ICE, and legal challenges over privacy and rule changes are underway [16] [4].
7. What the record does and does not show
Available reporting documents Treasury’s proposed regulatory approach, the DOJ opinion backing it, the IRS–ICE information‑sharing MOU, and substantial estimates of undocumented taxpayers’ aggregate tax contributions—all pointing to both policy change and probable behavioral effects [3] [4] [6]. Available sources do not mention finalized regulations cutting off refunds for tax year 2025 specifically; Treasury said final regulations are expected to apply beginning tax year 2026 [3]. Available sources do not provide final rule text or comprehensive judicial outcomes resolving all challenges as of the cited reports [3] [16].
8. Bottom line for undocumented workers
Federal regulatory moves through 2025 point to narrower access to refundable tax refunds and increased risk that tax‑filing data could be used in immigration enforcement—outcomes that will reduce or deter benefit claims by undocumented workers even though they continue to pay large amounts into the tax system [3] [4] [6]. State exceptions and pending litigation mean the situation will remain fluid; taxpayers and advisers should watch Treasury rulemaking, IRS privacy litigation, and state rules for the next concrete changes [3] [16] [1].