The IRS posted a draft 2026 Form 1040 last week that asks tax filers about their citizenship status for the first time: “At the time you file your return, are you, and your spouse if filing jointly, a U.S. citizen, U.S. national, or an alien lawfully authorized to work in the U.S.?”
Each spouse checks yes or no, directly below the digital asset question on page one of the federal tax return.
A companion form Schedule 3-A, titled “Federal Public Benefit,” asks a narrower question: whether you or your spouse is a citizen, national, or “qualified alien.” A “no” answer stops the IRS from paying out any refunded portion of certain tax credits, a direct hit to anyone relying on a refundable tax credit to boost their refund.
These types of tax credits are also the ones most targeted by scammers, since they can pay out more than the tax owed. It was a big driver in the PATH Act legislation that also prevents refundable tax credit refunds from going out before February 15.
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Why It Matters
The question enforces an August 19 Treasury proposal that treats the refunded portion of the earned income tax credit, child tax credit, American Opportunity Tax Credit, and adoption credit as “federal public benefits” under a 1996 welfare law. Treasury’s own estimates put 24 million filers in line for refunded credits in 2026, with 200,000 to 700,000 of them becoming ineligible and $700 million to $2.6 billion in refunds disallowed.
However, the two questions/tests don’t match. Work authorization covers DACA recipients, TPS holders, and workers on employment or student visas, yet the National Immigration Law Center notes none of those groups count as qualified aliens.
An H-1B worker would answer yes on the 1040 and still lose the refundable piece of credits on Schedule 3-A, which matters for families counting on the $1,000 refundable portion of the AOTC to cover tuition.
Will It Stick?
No vote in Congress is required – this is basically being handled administratively. The IRS draft coversheet says forms need Office of Management and Budget approval and accepts public comments, and the instructions explaining the question haven’t been released.
The refundable tax credit restriction applies only to tax years ending on or after final regulations are published, so finalizing them by December 31 would impact returns filed next spring, after IRS e-file opens.
Litigation is likely, and the Treasury’s rule is the target. Treasury’s proposal concedes that before 2018, Treasury and the IRS “had not viewed tax benefits, including refundable credits, as constituting Federal public benefits,” and American Bar Association Tax Section panelists called the reasoning “inconsistent with the prior Congressional treatment of the credits.”
Privacy is the second fight. On September 8, the D.C. Circuit upheld an injunction against an IRS procedure that sent 47,289 taxpayer records to ICE, ruling it “indisputably contravenes” federal tax privacy law. Filing obligations don’t depend on immigration status, so every noncitizen with a tax liability now faces the question.
How This Connects
With tax season approaching, this is more important than ever. The Big Beautiful Bill Act has already dramatically changed tax filing for many Americans, and this is just one more change.
Add into it the concerns over the current immigration policies and how they’re being enforced. Many families may think twice before filing their taxes. That could end up causing a whole lot of problems for both the individuals and families, and potentially the U.S. government.
It’s important to note that students already answers citizenship questions on the FAFSA. Mixed-status families with a college student could see the refundable education credit disappear even when the student is a citizen.
What’s Next
Comments on the proposed rule close October 5, with a public hearing October 14, according to the Federal Register notice. Watch for final regulations, the 2026 Form 1040 instructions, and whether tax software providers build the question into their filing flows.
Editor: Colin Graves
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Robert Farrington is the founder of The College Investor and is widely recognized as one of the nation’s leading voices on student loan debt and saving for college. He holds an MBA from UC San Diego Rady School of Management and has spent over 15 years researching, writing, and advising on student loans, 529 plans, financial aid programs, and saving and investing for young professionals.
Robert has been featured in the The New York Times, The Wall Street Journal, The Washington Post, NBC News, and Forbes, where he has been a regular personal finance contributor for over a decade. His work combines both professional expertise and personal experience – he successfully navigated his own student loan repayment journey and has helped thousands of readers do the same.
He is committed to making the intersection of personal finance and education transparent and accessible. You can learn more about Robert on the About Page or on his personal site RobertFarrington.com.