The United States government, led by ex-President Donald Trump, is proceeding with an unpopular scheme to levy a 5% tax on remittances sent by immigrants from the U.S. to their countries of origin, mostly Mexico, Cuba, and other countries in Latin America. The new levy to be implemented in 2026 has devastating economic and societal effects on tens of millions of immigrants as well as on the economies of the Latin American countries that depend so much on these resources.
What is the suggested remittance tax?
The suggestion is included in so-called “One Big Beautiful Bill Act” that suggests imposing a 5% excise tax on any foreign money transfer received by foreigners living in the United States, including permanent residents and also holders of non-immigrant visas like H-1B workers and Green Card holders. US citizens would be exempt, but all others who remit money abroad would be required to pay this extra fee. The tax would be withheld at source by certified remittance transfer providers and paid quarterly to the US Treasury.
Who will be impacted?
Over 40 million Mexican, Cuban, and other Latin American immigrants in the U.S. would be hit directly. Though they are legal immigrants or temporary visa holders or even foreign students who send money to their relatives back home on a regular basis, they would all suffer. Indian immigrants in the U.S., for instance, would also suffer because they invest in real estate or send money to finance their relatives back home.
Economic impact to Mexico and Latin America
Remittances are a major source of foreign exchange as well as economic assistance to most countries in Latin America. Remittances sent to Mexico alone added tens of billions of dollars annually, one of the country’s primary foreign income sources. It is estimated that a 5% tax on remittances would cut the level of money entering Mexico by at least $3.25 billion a year, which would trim Mexico’s GDP growth rate by about 0.18 percentage points in the initial year of imposition.
The tax would also encourage migrants to use unofficial, unregulated means to remit money back home, e.g., using travelers or friends, which would make the tax less effective and more dangerous for senders and receivers. In addition, restricting remittances sent by illegal immigrants, proposed by Trump’s administration, would reduce up to 30% of remittances to Mexico—some $19 billion a year—potentially leading to an even deeper economic slump of some 1% of GDP in a year.
Larger effects on Latin American social dynamics and economies
Aside from direct economic expense, remittances also have a multifaceted role to play in Latin American society. Remittances are found to increase wealth and reduce the reliance of recipients on local economic conditions and social government programs. This adjustment can affect political and budgetary choices, with inclinations to be lower in social welfare and public goods spending. Taxation of remittances can thus cut across these phenomena and influence government revenues and social compacts in receiving nations.
Effect on budget of U.S. economy and immigrants
The 5% tax is a heavy financial burden to immigrants who live in the U.S. Mid-income immigrants who remit money occasionally to home countries can cut down on frequency or remittance amount, which would hit support of relatives and investment at home. Higher-income persons might find it easy to bear the cost, but for the majority, the tax would change budgeting and asset planning.
The tax will impact the compensation culture of foreign workers in the U.S., including those who are paid restricted stock units (RSUs). When RSUs vest and proceeds are remitted overseas, the 5% excise tax would be imposed, twice-taxed income, as the income is already subject to tax.
Foreign students, who opt to send money back to their families or service loans, would be subject to higher charges, which would extend the lenders’ repayment duration and increase risk exposure.
Political and diplomatic reactions
The bill has been resisted by tough criticism from Mexican officials and immigrants’ right groups. Mexican President Claudia Sheinbaum labeled the tax as “unacceptable” and demanded that it would amount to double taxation as Mexican immigrants are already contributing to U.S. taxes. Chamber of Deputies and Mexican Senate both formally urged U.S. lawmakers to withdraw the bill.
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