The Work and Pensions Secretary set out plans requiring European Economic Area (EEA) migrants to demonstrate they have earned around £150 a week for three months in order to qualify for "worker" status, which opens the door to more generous benefit entitlements.
The Department for Work and Pensions said current European Union case law meant the "worker" category was too broad and potentially open to some who did very little work.
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Duncan Smith said: "As part of the Government's long-term economic plan we have taken action to make sure our economy delivers for people who want to work hard, play by the rules and contribute to this country.
"These reforms will ensure we have a fair system - one which provides support for genuine workers and jobseekers, but does not allow people to come to our country and take advantage of our benefits system.
"The British public are rightly concerned that migrants should contribute to this country, and not be drawn here by the attractiveness of our benefits system."
People who have been classed as workers are able to claim child benefit and child tax credit, jobseeker's allowance if they lose their employment, and housing benefit.
The earnings threshold will be set at the level at which people start paying national insurance, £149 a week in 2013/14, and £153 a week in 2014/15.
Anyone with earnings below that threshold will face a fuller assessment of whether their work was "genuine and effective", with the possibility of being denied worker status.
Where a decision is made that an EEA migrant should not be considered as a worker they would be classed as a jobseeker or not economically active, restricting their access to the welfare system.
Jobseekers will need to wait three months before getting income-based jobseeker's allowance and, after the introduction of new rules on April 1, they will be ineligible for housing benefit.
Those deemed not economically active would need earnings above income support levels and comprehensive sickness insurance, to be eligible to claim child benefit or child tax credit.