On July 4, President Donald Trump signed into law the One Big Beautiful Bill Act, which adopts numerous tax and spending changes, including a new tax on remittances. The final version of the remittances tax will avoid some of the problems that would have arisen if the earlier versions (discussed here and here) had been adopted. Unfortunately, however, the tax will still serve no useful policy purpose.
The tax, which will take effect on January 1, 2026, will apply to certain remittances from senders in the United States (including the US possessions) to recipients in foreign countries. The tax rate will be one percent, down sharply from the 3.5 percent rate in the earlier versions. The Joint Committee on Taxation estimates that the tax will raise $10 billion of revenue over the next decade.
The tax is broad in two respects and narrow in one respect. The tax will apply regardless of the sender’s citizenship or immigration status. Moreover, it will apply to financial transfers made for a wide range of purposes. However, it will apply only to remittances paid for with cash or other similar methods.
The tax will apply impartially to remittances sent by US citizens, green card holders, other non-citizens legally present in the United States (both those with Social Security numbers and those without them), and non-citizens illegally present in the United States. The earlier versions would have allowed senders with Social Security numbers who paid the tax to claim refunds on their next income tax return. However, the final version has no refund provision.
Like the earlier versions, the final version of the tax cross-references a consumer protection law that (as elaborated in regulations and a compliance guide) generally defines a “remittance transfer” as an electronic transfer of funds sent by an individual—not a business entity—for “personal, family, or household purposes.” The definition sweeps in a wide range of financial transfers, including money sent to a foreign university to pay for a child’s tuition, to a foreign charity, or to the sender’s own foreign bank account.
However, the tax will apply only to remittances that are paid for with cash, a money order, a cashier’s check, or “any other similar physical instrument” designated by the IRS. Remittances paid for in other ways will be exempt from the tax. The law further states that the tax will not apply to remittances paid for with a US debit or credit card or with funds withdrawn from certain US financial institutions.
The final version avoids the privacy concerns raised by earlier versions. Under those versions, eligible senders who planned to claim a tax refund on their next income tax return would have been required to give the remittances transfer provider their name, address, and Social Security number, which the provider would have been required to report to the IRS. Because the final version has no refund provision, remittance transfer providers will not be required to collect any information from senders.
Unfortunately, the tax could still arouse concerns about the possible adoption of broader capital controls. Also, if the tax reduces remittances sent abroad, it could still encourage illegal immigration by weakening the economies of countries that rely on remittances from the United States. The lower tax rate lessens, but does not eliminate, these problems.
Moreover, the tax’s biggest flaw remains unchanged—it simply will not serve any useful policy purpose.
source: American Enterprise Institute
