Blog · 14 October 2026

Draft Schedule 3-A and Refundable Credits as a "Federal Public Benefit": What US CPA Firms Should Prepare For

By Keshav Bansal, CA

The IRS's draft Schedule 3-A (Form 1040), titled "Federal Public Benefit," could add a new step to every 2026 return that claims the earned income credit, the additional child tax credit, the refundable American opportunity credit or the refundable adoption credit. It isn't final, and the IRS just cancelled the public hearing on the rules behind it. For US CPA firms, now is the time to learn what the draft asks, who it touches and what to change in intake before the 2027 filing season.

What the proposed rules say

The form comes from proposed regulations, REG-119882-25, published in the Federal Register on August 20, 2026. Treasury and the IRS propose that the refunded portion of four credits (the adoption credit, the American opportunity tax credit, the child tax credit and the earned income credit) is a "Federal public benefit" under the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA). Under the proposal, aliens who are not "qualified aliens" under PRWORA could not receive that refunded portion. Per the preamble, they could still use the nonrefunded portion of a credit if they otherwise qualify for it.

Key mechanics in the proposed regulations:

• Self-certification. Each person claiming an affected credit that results in a federal public benefit (or one spouse on a joint return) would declare under penalty of perjury that they are a US citizen, US national or qualified alien. Per the preamble, that can be done on Schedule 3-A "or other form as determined by the Treasury Secretary."
• No declaration, no refunded portion. A person who doesn't provide the declaration in the form the IRS requires would not be eligible to receive the refunded portion of any affected credit for that year.
• Timing. Status is tested on the date the taxpayer files the return that first claims the credit, which may be an early, amended or late return.
• Joint returns. If the credit exceeds the couple's tax, one spouse being a US citizen, US national or qualified alien is enough to receive the joint refunded portion.
• Applicability. The rules are proposed to apply for taxable years ending on or after the date final regulations are published in the Federal Register.

The October 14 hearing was cancelled

Comments were due October 5, 2026, and a public hearing was set for October 14, 2026. In a notice published October 9, 2026 (FR Doc. 2026-20790), the IRS cancelled the hearing because it received no requests to testify or outlines of topics. A cancelled hearing doesn't mean the proposal is dropped. The next milestone to watch is final regulations, together with the final 2026 Schedule 3-A and Form 1040 instructions.

What the draft Schedule 3-A asks

The draft 2026 Schedule 3-A is marked "Draft — Do Not File." Its caution line says to complete it only if the taxpayer is claiming one of the four credits. It has two parts:

• Part I calculates the refunded portion of those credits, using amounts from Form 1040 and Schedule 2. If there is a federal public benefit, line 7 asks: "Do you want to receive your federal public benefit?"
• Part II (line 8) asks: "Are you or your spouse a U.S. citizen, U.S. national, or qualified alien?" The result flows to a new line 32b on Form 1040, 1040-SR or 1040-NR (line 12b on Form 1040-SS).

As NATP points out in its Schedule 3-A overview, the schedule doesn't decide whether a client qualifies for the credit itself. It decides whether the refunded portion can be paid out. NATP also notes that the forms and instructions are still subject to approval and could change.

How many clients it could touch

The proposed regulations' own economic analysis gives the scale. Treasury and the IRS estimate that for tax year 2026, 49 million individual returns will claim at least one of the four credits, and an estimated 24 million will claim one that results in a federal public benefit. Of those 24 million, they estimate 200,000 to 700,000 taxpayers (0.8 to 2.8 percent) would likely be ineligible to receive it. Using an estimated average federal public benefit of $3,656 for 2026, they put disallowed credits at $0.7 billion to $2.6 billion.

The practical point for firms: only a small share of claimants would lose the refunded portion, but in the draft, every client with a refunded portion of these credits would complete the schedule.

Why practitioners are worried about the draft

Elaine Maag of the Tax Policy Center, writing on October 6, 2026, urged the IRS to abandon the draft. She argues that Schedule 3-A would affect everyone claiming the affected credits, not just noncitizens whose eligibility would change. She also asks whether people will recognize that "federal public benefit" means their refundable tax credits. Her piece says it's unclear what happens if a taxpayer skips the schedule.

In an earlier Tax Policy Center piece (September 3, 2026), Margot Crandall-Hollick notes that preparers' expertise is tax law, not the complexities of immigration law. She warns that eligible taxpayers could lose credits through an error or omission in paperwork.

The preamble also lists the penalties. It cites section 7206 (willfully false statements on a return are a felony, with a fine of up to $100,000 and up to 3 years in prison), 18 U.S.C. 1015(e) and 18 U.S.C. 1001. The declaration is the taxpayer's, but as the ghost preparer cases show, the signing preparer's process still matters.

What US CPA firms can do now

• Find the affected clients. Pull last season's returns that claimed the EITC, the additional child tax credit, the refundable AOTC or the refundable adoption credit. That list is your likely Schedule 3-A population if the rules are finalized.
• Plan an intake question, but don't decide status for the client. Draft neutral wording for your organizer that mirrors the final form once it's released. Don't make immigration-status determinations on a client's behalf. Refer complex status questions to an immigration professional.
• Test your software. When vendors add line 32b, check how a "No" or a blank on line 7 or line 8 changes the refund before you go live.
• Update engagement letters and refund estimates. If a client's refund depends on refundable credits, avoid quoting a refund until the final rules and instructions are out.
• Mind data handling. Citizenship and immigration answers are sensitive. If any prep work is outsourced, make sure your Section 7216 consents and safeguards cover the new data, and only share what the work needs.

Where outsourced support fits

A new schedule means more intake questions and review time in an already compressed season. Extra hands for document gathering, bookkeeping catch-up and return drafts don't replace the signing preparer's judgment, but they free time for the calls that need it. If your firm wants help with bookkeeping, cleanup and tax prep support for US CPA firms, email info@taxbrewglobal.com.

Check current IRS guidance: this article summarizes sources as of 14 October 2026 and is general information, not tax or immigration advice. Schedule 3-A is a draft and REG-119882-25 is a proposed regulation; both may change or may not be finalized. Confirm against the final regulations, the final 2026 Form 1040 instructions and the cited sources before acting.