Sending money to family in foreign countries may be taxed more

Yahoo

5 hours ago

Jun. 9—Families hoping to send money to loved ones in other countries may be hit with additional fees from a tax and spending bill proposed by the Trump administration that would slap a 3.5% tax on remittances sent by anyone who is not a U.S. citizen.
The "One Big Beautiful Bill Act" passed through the House in May and is now being debated by the Senate. The budget bill has several proposed tax changes, which include taxing money sent from an estimated 40 million non-US citizens — including green card holders, temporary workers and undocumented immigrants — to family and friends in other countries. The bill had a 5% tax but was reduced to 3.5%.
The bill is another way the Trump administration is hoping to dissuade immigrants, both documented and undocumented, from coming into the country and moving money out of the U.S. economy.
Republicans believe the bill would increase the average take-home pay of U.S. citizens, while Democrats believe the bill and increased taxes are "a transfer of wealth from the working class to the rich," said Daniel Garcia, spokesperson for the Democratic Party of New Mexico.
What is a remittance?
Remittances refer to sending money from one person to another and is typically done between family members from one country to another. A person living and working in the U.S. would send money to family members typically living in a developing country, where this money is a source of income that contributes to the country's gross domestic product (GDP).
Payments are typically sent using an electronic payment service or a money transfer app. Banks, credit unions and money transfer services charge a fee for processing remittances, and fees average 10%, according to the International Monetary Fund. Cryptocurrency exchanges are not as heavily regulated and can be a way to avoid additional taxes and surcharges.
"Taxing remittances would amount to a form of double taxation, since migrants already pay taxes in the country where they work," Esteban Moctezuma Barragán, Mexican Ambassador, wrote in a statement.
"Imposing a tax on these transfers would disproportionately affect those with the least, without accounting for their ability to pay," Barragán added.
However, some believe the 3.5% tax fee would give financial support to public services and is the most "pro-worker, pro-family and pro-American legislation we've seen in decades," said Amy Barela, chairwoman of the Republican Party of New Mexico.
"Let's be clear, this measure is not about targeting individuals," she wrote in a statement to the Journal. "It's about ensuring the 3.5% fee, although modest, would also have a very meaningful impact in helping offset costs associated with public services, border security, and community infrastructure — relieving some of the financial pressure on hardworking New Mexicans who continue to bear the burden of an imbalanced system."
Crucial source of revenue
Mexico is the second-largest receiver of personally wired money behind India, according to the Center for Strategic and International Studies. In 2024, Latin America received $160.9 billion, with the U.S. accounting for 96.6% of all remittances to Mexico. They also make up 20-30% of GDP in countries like El Salvador, Guatemala, Haiti and Honduras.
"Remittance is a very important source of revenue in our government," said Patricia Pinzón, consul of Mexico. "This would affect Mexican families and the economy in general, but I would say the basic needs of Mexican families is the most worrying thing."
However, "whatever happens in one economy will affect the other," said Pinzón.
"Our economies are so interrelated that everything that happens here has a consequence in Mexico," she said. "Mexicans will not stop sending money; they'll just look for alternative ways to send it."
Mexican migrant workers sent 16.7% of their labor income back to their families, and more than 80% of the income remains in the U.S. economy. The average amount of remittance sent to Mexico is roughly $350 every one to two months, which "could seem like nothing for the U.S., but it's money that a whole family lives on and covers their basics in Mexico," Pinzón said.