US Bill to slap 5% tax on remittances sent abroad by non-citizens- India Travel Times

WASHINGTON, May 16: The American ruling party will soon introduce in the US House of Representatives a Bill that imposes a 5% tax on remittances sent abroad by non-citizens in the US.

The new Republican tax is part of the 'One Big Beautiful Bill' proposed by President Donald Trump.

This legislation is expected to have a significant financial impact on migrant workers, particularly Indian professionals who send money back home, although Trump's target is illegal immigrants.

Remittances overseas are mostly sent by green card and visa holders and illegal immigrants, all of whom want to support their families back home. US citizens would be exempt.

In all there are 40 million people in America sending money abroad. A large number of recipients abroad live off such remittances.

Last month Trump had on his social media platform Truth Social floated a post that he is preparing a "presidential memorandum" to “shut down remittances” sent by illegal immigrants. The details have not been released so far.

Several States had tried to check remittances by legislation in the past but not been able to do so. Oklahoma passed a legislation in 2009 to tax $5 fee on remittances on wire transfer under $500 and 1% on amounts above that. But the Federal proposal is different in that it is on remittances made by non-citizens.

Overview of the remittance tax proposal

The Bill mandates that any international money transfer made by a non-citizen will be subject to a 5% tax, which will be withheld at the point of transfer by the remittance service provider.

This tax applies to all non-citizens, including non-immigrant H-1B, H-2A, L-1 and H-2B visa-holders as well as green card holders who have not yet acquired US citizenship.

Impact on Indian workers

India is the largest recipient of remittances globally, with the United States being the top source. In 2023-24, India received $118.7 billion in remittances, with $32 billion coming from the US alone. If the Bill is enacted, Indian-origin residents in the US would collectively bear an estimated $1.6 billion in taxes annually. There are about 45 lakh Indians or people of Indian origin in the US.

Key provisions of the tax

Flat 5% Tax Rate: The tax applies regardless of the amount transferred, meaning even small transactions will be taxed.
No Minimum Exemption: Unlike other tax policies that exempt small-value transfers, this Bill does not provide any threshold for exemption.
Service Providers’ Role: Banks and remittance service providers will be responsible for collecting and remitting the tax to the US Treasury.
Exemptions: Only verified US citizens and nationals will be exempt from the tax.

Concerns and criticism

The proposal has sparked concerns among immigrant communities, particularly those who regularly send money to family members or invest in property and securities abroad. Critics argue that the tax is regressive, disproportionately affecting low and middle income workers who rely on remittances to support their families.

Additionally, experts warn that the tax could reduce the overall flow of remittances, impacting India’s foreign exchange reserves and economic stability. Some financial analysts suggest that Indian workers in the US may start sending larger remittances before the law takes effect to avoid the tax burden.

Legislative timeline

The Bill is currently under review by the House Ways and Means Committee, with expectations that it could move swiftly through Congress. If passed, it could become law by June or July 2025.

Final remarks

The remittance tax proposal in the One Big Beautiful Bill is one of the most debated aspects of the legislation. While it aims to generate revenue and curb money transfers abroad, it also raises concerns about its impact on immigrant workers, particularly Indians in the US. If enacted, it could reshape financial planning for many non-citizens and alter global remittance patterns.

Some experts say it will only encourage more illegal immigration indirectly but others say a tax would certainly be a control on illegal immigrants.

Such a heavy tax can also give rise to illegal money transfer routes through underworld operations misusing ordinary citizens by luring them with petty commission - as simple as that. This will in the long run undermine what is called American economic freedom and upend the economy itself.