In a dramatic escalation of the Trump administration’s immigration and economic agenda, Treasury Secretary Scott Bessent announced Friday that his department is preparing new regulations that would cut off refundable federal tax credits to undocumented immigrants—a move conservatives have demanded for years and immigration advocates warn will harm U.S. citizen children in mixed-status families. The announcement, posted directly by Bessent on X, signals that the administration is aligning financial policy with its mass-deportation and border-tightening strategy, creating what critics say is a “two-tier tax system divided by legal status.”

“We are working to cut off federal benefits to illegal aliens and preserve them for U.S. citizens,” Bessent wrote, calling refundable tax credits “federal public benefits” that undocumented immigrants are not entitled to claim. He cited four major credits set to be restricted:
• Earned Income Tax Credit (EITC)
• Additional Child Tax Credit (ACTC)
• American Opportunity Tax Credit (AOTC)
• Saver’s Match Credit

Refundable portions of these credits—which can generate tax refunds even when filers owe no income taxes—represent billions of dollars annually. While undocumented immigrants cannot receive many federal benefits, they have historically been allowed to claim certain tax credits if they use an Individual Taxpayer Identification Number (ITIN) and have qualifying dependent children, many of whom are U.S. citizens.

Bessent now intends to end that practice entirely.

A Sharp Break From Decades of IRS Practice

The move follows a legally significant—but lightly publicized—opinion from the Justice Department’s Office of Legal Counsel (OLC) earlier this month. That ruling sided with conservative activists who argue refundable tax credits should legally count as “federal public benefits,” putting them off-limits to undocumented immigrants.

Treasury’s announcement signals that the OLC interpretation is now official policy, telling financial institutions and tax preparers to prepare for major changes before the 2026 filing season.

Bessent praised the IRS and Treasury’s Office of Tax Policy for “tireless work” implementing what he called a “historic integrity measure.”

“If you’re here illegally,” he added in a second post,
“there’s no place for you in our financial system.”

He accused undocumented immigrants of using U.S. banks “to move illicitly obtained funds,” though he did not specify cases or provide new data. Treasury’s Financial Crimes Enforcement Network (FinCEN) simultaneously issued an alert instructing financial institutions to flag suspicious activity tied to undocumented customers—an aggressive step that some experts say blurs the line between immigration enforcement and banking regulation.

Immigration Advocates Warn: American Children Will Be Hit First

Advocacy groups responded within hours, saying the proposal misunderstands how these credits are used. According to the nonpartisan Migration Policy Institute, approximately 4 million U.S.-citizen children live in households where parents use ITINs for tax filing. These families typically receive the Child Tax Credit or Additional Child Tax Credit, which Congress explicitly expanded in previous decades to combat child poverty.

“This policy punishes U.S. citizen children,” said one tax policy attorney. “Treasury is framing this as blocking ‘illegal aliens,’ but the reality is that the biggest losers will be American kids whose parents pay billions into the system through payroll taxes.”

The IRS’s own data shows undocumented immigrants collectively pay an estimated $23 billion in income, payroll, and sales taxes annually.

Political Calculus: Trump Ties Economic Populism to Immigration Crackdown

Bessent’s announcement comes amid intense political pressure within Trump’s coalition to target any perceived “loopholes” benefiting undocumented immigrants. With mass deportations underway and ICE conducting high-profile raids in cities like Charlotte, Denver, and Philadelphia, the administration appears to be tying economic policy directly to its immigration platform.

Trump himself framed the plan in sweeping terms earlier this week, saying he intends to “permanently pause benefits that go to citizens of third-world countries,” though he did not specify which nations, nor how that would apply to mixed-status families or legal immigrants.

The move also follows congressional Republicans’ stalled attempts to pass legislation blocking undocumented immigrants from receiving refundable tax credits. By using executive authority and administrative rulemaking instead, Trump and Bessent appear determined to act without waiting for Congress.

Legal Showdown Looms as Opponents Prepare to Sue

Immigrant rights groups, tax experts, and several Democratic lawmakers are already signaling that lawsuits are coming. They argue that Treasury is stretching the legal definition of “federal public benefits,” potentially violating tax law, the Administrative Procedure Act, and constitutional protections for citizen children.

One Democratic Senate aide said Friday:
“This will end up in court the minute the rule is finalized. Guaranteed.”

Even some conservative tax attorneys have privately warned that the policy could backfire by driving millions of undocumented workers out of the formal economy and into unreported, cash-only jobs—reducing federal tax revenue.

Bessent’s Approach Marks a New Era of Hardline Financial Regulation

Unlike previous Republican administrations, which typically focused immigration action on border security, Bessent is moving aggressively inside the financial and tax system, signaling a broader vision:

If deportations are Phase One, cutting undocumented immigrants out of the financial system may be Phase Two.

FinCEN’s simultaneous alert to banks indicates that Treasury sees undocumented immigrants not only as immigration violators, but as potential financial risks. Critics call that framing dangerous.

What Comes Next?

Treasury must formally publish the proposed rule in the Federal Register, triggering a comment period before implementation. Courts may halt the process depending on challenges.

But Bessent made the administration’s intent clear:
“We will continue to ensure that taxpayer resources are directed only to those who are entitled under the law.”

The announcement cements yet another front in Trump’s tightening immigration agenda—this time not at the border, but deep inside the nation’s tax code.