Introduction and Understanding Remittances:

A remittance is a non-commercial transfer of funds made by a foreign worker, a member of a diaspora group, or a person with family links overseas to supplement household income in their home nation or motherland.

Money brought home by migrants rivals foreign aid as one of the most significant financial inflows to low-income countries. Remittances exceed total worldwide foreign aid by more than threefold. In 2021, $780 billion was distributed to 800 million people, with foreign aid totalling $200 billion. Most remittances are sent from high-income countries to low-income countries. Workers’ remittances contribute significantly to international capital flows, particularly in labour-exporting countries. A significant portion of remittances is absorbed by banks and money transfer businesses in the form of transfer fees. Governments can play an important role in allowing migrants to better support their families by enacting policies that lower transaction costs.

Proposed U.S. Remittance Tax on Non-Citizens (2025):

The United States House of Representatives launched the “One Big Beautiful Bill” in 2025, which included a proposal to levy a 5% tax on remittances made abroad by non-citizens, including H-1B visa holders and green card holders. The proposal, stated in the 389-page bill, applies to all transfer amounts unless the sender is a U.S. citizen or national, classified as a “verified U.S. sender.”

According to The Times of India, banks or money transfer firms will collect the tax at the time of transfer. Exemptions are granted only when both the provider and the sender meet qualifying criteria. The proposal is expected to significantly affect the number of Indian workers in the United States who send money home on a regular basis.

The Collateral Damage: US Entrepreneurs and Citizens:

International money transfers sent and received by non-US citizens from the US are the tax’s intended base. The tax’s drawbacks are more widespread, even though its goal is to target foreign nationals, especially those who are employed in the nation without authorization. Additionally, it imposes a compliance burden on individuals who were not the intended targets of the legislation, such as Americans or foreign account holders who regularly transfer money internationally for purposes other than remittance, including investing.

Both individuals and financial organizations will be held accountable for the demands placed on Americans. Some of the compliance requirements are even hinted to in the bill’s language. For financial institutions to qualify as remittance transfer providers (RTPs), they will have to collaborate with the US Treasury. Unless the sender provides proof of citizenship, qualified institutions must automatically deduct the tax from any money sent abroad that exceeds $15.

According to the Electronic Funds Transfer Act of 1978, financial institutions can decide whether a transaction counts as a remittance. But achieving the volume and precision required to create a useful tax base is a different story. It will be challenging to determine if a client is a US national. Current legislation requires financial institutions to collect IRS Form W-9, which gives some information. However, the new national status verification standards may demand more than just a W-9.

When someone files their annual income tax return, they can be eligible for a refund if they are unable to show their citizenship right away, but do so later. American citizens are required to comply with all the standards. The tax entails more paperwork, less privacy, and, in situations when it is misused, a complex and burdensome refund process.

The excise tax’s ability to deter foreign investment in the nation may have an even more detrimental effect. Even for uses unrelated to immigration or remittance, it makes it harder for foreigners to utilize US banks.