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The 3.5% remittance tax in President Donald Trump’s One Big Beautiful Bill — if passed in its current form — would bring a heavy compliance and reporting burden to banks and payment companies. Many requirements will need clarification before financial institutions can begin to prepare.
The tax would apply to transactions sent to a foreign country when the sender is located in the U.S. and would be paid by the sender, according to a bulletin from financial services law firm Holland & Knight. The company that provides the remittance transfer would be required to collect the tax and pass it along to the Internal Revenue Service, and those payment companies would be secondarily
There is also an exception to the tax if the sender is a U.S. citizen or national who uses a qualified remittance transfer provider, or a remittance service that “enters into a written agreement with the U.S. Department of the Treasury and agrees to verify that the sender is a U.S. citizen or national,” according to the bulletin. The payment companies would be required to verify whether the sender is an American citizen.
That’s a heavy lift for banks and payment companies, said Tara Ferris, a principal in the financial services office at Ernst & Young who specializes in tax reporting.
“My clients are doing a lot of analysis of, ‘Am I meeting the definition of a remittance transfer and how broad or how narrow could that be interpreted?'” Ferris told American Banker. “They’re seeing this excise tax as a big implication within the organization — a tax that they’ve never had to administer before that now they’ll have to comply with.”
The United States sends hundreds of billions of dollars abroad every year, according to the World Bank. In 2021, it sent more than $188 billion in remittances, with countries such as Mexico, India and Guatemala receiving the highest volumes at $53 billion, $16 billion and $14 billion, respectively. By comparison, $478 billion in remittances were sent worldwide in 2021, according to the World Bank.
The tax is poised to force banks and payment companies to incur additional costs as they set up new processes and procedures to impose, collect and report on the tax, said Anna Kooi, a partner and national financial services industry leader at advisory and accounting firm Wipfli.
“Obviously, that’s not income for them,” Kooi told American Banker.
Questions remain as to which transactions would be considered covered remittances. For example, if a U.S. citizen living abroad moves money from a U.S.-based bank account to a foreign bank account, is that a taxable transaction? And how might securities transfers be included or excluded from the requirements?
“The biggest thing is just clarification, so folks can start making the changes in whatever timeline is going to be required, [and] making sure that they fully understand it,” Kooi said.
There’s also the question of how financial institutions will identify who is a U.S. citizen, EY’s Ferris said.
“When I’m opening up an account relationship, I fill out a W9,” Ferris said. “A W9 is provided by more than just U.S. citizens and nationals. It’s also provided by green-card holders. So what additional due diligence, if any, will I need to do to determine who’s a U.S. citizen and national?”
Seven industry groups — including the Electronic Transactions Association, INFiN, the Money Services Business Association, the Money Services Round Table, the Financial Technology Association, the American Fintech Council and the Innovative Payments Association — came out in opposition of the tax in a
The groups said the bill poses “complex, convoluted, and burdensome framework for potentially avoiding the tax” and could undermine
“We see this tax as being particularly harmful to both consumers that use remittances and small businesses that facilitate the remittances, and even large corporations that may have professional services [or] corporations that may have employees who use remittances for one reason or another,” Ian Moloney, senior vice president and head of policy and regulatory affairs at the American Fintech Council, told American Banker.
The letter cited a
“That to us is a clear warning of what could happen nationally if a tax like this was pursued because it’s a very similar situation within their remittance tax law,” Moloney said.
The tax may also cause a pullback in the number of remittance providers, according to the letter from the trade groups.
“A tax in any amount will increase compliance costs for financial institutions, forcing them to either pass the costs on to consumers or reduce services,” according to the letter. “It would also increase the administrative burden for Treasury and other agencies tasked with enforcing the tax, diverting resources from more critical areas.”
U.S. citizens abroad would be affected, too, according to American Citizens Abroad, a Washington, D.C.- based nonprofit and nonpartisan advocacy organization representing the 5 million U.S. citizens living and working overseas.
“Americans abroad will see the remittance tax as yet another punitive complication arising from what is, for them, an ordinary financial transaction,” said ACA’s Legal Counsel Charles Bruce in a statement.
Foreign banks also may impose “considerable” transaction or administrative fees, or lead others to refuse the service entirely, according to the ACA.
“The Senate should remove the new remittance tax and compliance requirements altogether,” the ACA said.
That could have implications for U.S.-based regional and community banks, too, depending on what safe harbor carve-outs are implemented in the provision, Wipfli’s Kooi said.
“Will this force some of your individuals to move to national or international financial institutions, and go away from community banks or even regional banks?” she said.
President Trump’s 1,038-page One Big Beautiful Bill is currently in the Senate, where it is expected to be revised.
What is the proposed remittance tax and how will it impact banks and payment companies?
The “One Big Beautiful Bill” proposes a 3.5% tax on money transfers sent from the U.S. to foreign countries when the sender is located in the U.S. Banks and payment companies will be responsible for collecting the tax from the sender and remitting it to the Internal Revenue Service, and could be held secondarily liable for any failures to properly report and remit these taxes.
Are there any exemptions to the remittance tax?
Transfers made by U.S. citizens or nationals are exempt from the tax. To qualify for this exemption, financial institutions would need to become “qualified remittance transfer providers” by entering into a written agreement with the Treasury Department obligating the provider to verify the sender’s U.S. citizenship or national status.
How will banks and payment companies verify U.S. citizenship to qualify for the tax exemption?
Currently, financial institutions use forms like the W9, but these are also provided by non-citizens such as green-card holders. Banks will need additional due diligence to definitively determine if a sender is a U.S. citizen or national, though the specific requirements for this enhanced verification are still unclear.