Critics of the proposed 3.5% remittance tax would significantly increase the cost of sending money across borders, impacting vulnerable populations and moving fund flows into informal and risky methods.
The tax is levied on transfers by non-U.S. citizens, impacting potentially 50 million people in the United States, while U.S. citizens and qualified providers would be exempt.
The legislation is criticized by industry participants as a “blanket tax on cross-border payments” that could harm small businesses, such as grocers and other smaller businesses providing remittance services.
The “One Beautiful Bill” that’s made its way through the House and now is up for debate (and possible changes) in the Senate will have a significant impact on the remittance industry — and perhaps some unintended consequences.
As it stands now, the Act includes a tax of 3.5% on remittances that would be sent from non-U.S. citizens to countries outside of the United States. The tax would take effect at the beginning of next year, and there is no minimum amount for the transfer. The tax itself is to be collected by the remittance providers, apps and banks, to be paid out to the U.S. Treasury.
The bill states: “The tax imposed … with respect to any remittance transfer shall be paid by the sender” where verified U.S. citizens sending funds through qualified remittance providers would be exempt from the tax.
Last month, the Joint Committee on Taxation estimated that the so-called “excise tax on remittance transfers” would bring in over $22.2 billion in tax revenues to the government through 2034 (cumulatively).
The World Migration Report has put the U.S. as the top nation sending remittances from migrant populations, sending about $79 billion as recently as 2022. The cost of sending remittances as a percentage of the value to Latin America and the Caribbean, among the most trafficked remittance corridors, is estimated in this report at just under 6%. We note that the tax would increase the all-in cost by almost 50%.
For countries such as Mexico, remittances are a significant driver of GDP. The Federal Reserve estimated that remittances from the United States to Mexico accounted for about 4.5% of Mexico’s GDP in 2022.
PYMNTS Intelligence has noted that in the United States, 44% of individuals surveyed have been using digital wallets to send money across borders; another 16% have been using money transfer services.
In a recent interview with PYMNTS CEO Karen Webster, Matt Oppenheimer, co-founder and CEO of Remitly, said that within Remitly’s own disbursement network, digital remittances have gained ground, increasing its share of cross-border payments by 300 basis points in the latest quarter.
Delving into market corridors, Oppenheimer said that Remitly “originates” payments from 30 countries where individuals send funds. The largest receiving countries are Mexico, India and the Philippines, but the non-top three countries grew by 45% last quarter and accounted for the majority of Remitly’s sales, topping $1 billion annualized (first-quarter sales grew by 34% year over year).
A Shift to Riskier Channels (and Cash)?
Should the bill pass, here are some possible consequences:
In a letter this past week, the American FinTech Council told lawmakers that the legislation is a “blanket tax on cross-border payments that would harm small businesses and everyday consumers while empowering bad actors and undermining effective anti-money laundering enforcement.” Particularly hard hit would be grocers and other smaller businesses that provide remittance services.
Separately, the Inter-American Dialogue estimates that the tax would impact 50 million people in the United States, including green card holders (23 million individuals), nonimmigrant visa holders (14 million) and the unauthorized population (12 million individuals).
The tax may, according to media reports such as in the Financial Times, push these populations to use cryptocurrencies. PYMNTS Intelligence reported that about 25% of people sending cross-border funds have done so using crypto.
The International Association of Money Transfer Networks (IAMTN) also decried the proposal.
“The proposed tax would increase the cost of sending money, diverting a significant portion of remittances into informal and risky channels,” the IAMTN said in a statement. “Many migrants, already stretched financially, may resort to hand-carrying cash, using informal couriers, or leveraging unregulated methods. While these alternatives might bypass the tax, they carry serious risks of fraud, theft and financial exclusion, undoing years of progress in integrating underserved populations into formal financial systems.”