US remittances: What does the new tax mean for migrants and foreign workers?

The National

15 hours ago

A scaled-back US remittance tax could offer some relief to most migrants and foreign-born workers, although the new charge could still have an impact on the world's poorest.
The Senate most recently revised President Donald Trump's ' One Big Beautiful Bill ' Act, reducing an excise tax on remittances from 3.5 per cent to 1 per cent. The new provision also excludes transfers from US bank accounts, as well as debit and credit cards issued in the US.
With the bill passed by the House of Representatives, it now heads to Mr Trump's desk to be signed.
The tax would apply if cash, a money transfer order, cashier's check or similar is used to transfer funds.
Those to be most impacted by the new tax include green card and visa holders, temporary residents and lawful permanent residents. Foreign employees on a H-1B visa or an H-2B visa would also be subject to the excise tax.
US citizens would be exempt from this new tax, but they would be required to provide proof of their citizenship through a 'qualified' money transfer provider such as Western Union. The tax would be collected by the remittance company and then paid quarterly to to the treasury department.
The new law would be set to take effect after December 31 this year.
The tax is a continuation of Mr Trump's hardline stance on immigration, with Vice President JD Vance arguing it would deter illegal immigration. It has also received significant pushback from Mexico, which was the largest destination for US remittances in 2023 at $53 billion.
People are waiting for money because maybe they need it for medical supplies or to pay the rent
Remittance sender
'People are waiting for money because maybe they need it for medical supplies or to pay the rent,' said one individual based in Chicago, who was granted anonymity for this story.
The individual, who regularly sends remittances to their father in Mexico, while the new law could make it more difficult to send money back home, senders are unlikely to be deterred.
'People who want to send money, they're going to find other ways to send the money,' they said.
Remittances worldwide
More than $650 billion was received in remittances worldwide in 2023, according to the most recent data available from the World Bank.
'And for many countries, they are basically the only source of finance,' said Helen Dempster, a policy fellow at the Centre for Global Development.
While remittances help individuals with purchasing basic needs, they are also a vital tool for boosting development and count as a significant source of gross domestic product in low-income countries. For example, World Bank data shows remittances accounted for 38.4 per cent of Tajikistan's GDP in 2023 compared to 3.4 per cent in India.
At more than $93 billion, the US sent remittances more than anywhere else in the world in 2023, according to most recent World Bank data. Meanwhile, India is the largest receiver at $129 billion.
Mexico remains the largest receiver of US remittances at $53 billion in 2023, according to the Migration Data Portal.
But US remittances are far-reaching. Other top receivers of US remittances include India ($16 billion), the Philippines ($13 billion), China ($13 billion) and Pakistan ($6 billion).
Lebanon ($1 billion), Jordan ($610 million), Tunisia ($446 million) Iraq ($80 million) and Saudi Arabia ($65 million) all receive US remittances as well.
On a broader level, a US remittance tax could have a disproportionate affect on the world's poorest economies that rely on them for economic growth. Indeed, remittances are the largest source of external financing for developing- and low-income countries, surpassing foreign direct investment and official development assistance.
While India is the largest receiver of remittances in the world, its share towards gross national income is smaller to that compared to low-income countries like Jordan, Guatemala or Honduras.
'A country like India is much more able to weather that impact than a country like Jordan,' said Helen Dempster, a policy fellow at the Centre for Global Development.
Others to be significantly impacted by this include many countries in South and Central America such as Honduras, El Salvador and Guatemala.
'It's really doubling down on impact in the world's poorest countries off the back of aid cuts, which will already be reducing their ability to be able to meet their own needs+-,' Ms Dempster said.
How practical is the new tax?
While the scaled-back version will make it less expensive for certain senders to send money back home, whether or not people will seek to find ways around it remains an open question.
'A punitive tax like this propels people that are sending money abroad to seek out alternatives, because their real sort of conditions aren't changing,' said Ananya Kumar of the Atlantic Council's GeoEconomics Centre.
'So they're just seeking out alternatives which are going to be less regulated, they're going to be less transparent, and therefore making it less safe.'
Even with the excise tax at 1 per cent, the non-partisan Joint Committee on Taxation estimates it will generate nearly 10 times the amount of revenue a 3.5 per cent tax would generate. According to the committee, a 1 per cent tax would bring in a revenue of almost $10 billion.
While the latest bill significantly defangs the original proposal, Laura Snyder, a Paris-based lawyer, said the tax will most impact the undocumented, the poor and those who lack the funds to have US assets. And because of that, those who receive remittances will be harmed as well.
'The people who will be most affected by the remittance tax will be the intended recipients of the funds," she said.
"They are the poorest of the poor. Because of the tax, they will receive less badly needed money."