The U.S. Government is considering a comprehensive tax reform package titled the “One Big Beautiful Bill Act.” A key provision of this proposed Act—outlined in Section 4475 of the Amendment in the Nature of a Substitute—introduces a 5% excise tax on remittances sent from the United States to other countries by individuals who are not U.S. citizens or nationals. The proposed 5% remittance tax in the U.S. represents a significant policy shift with far-reaching implications for immigrant communities.
Key Provisions of Section 4475
Tax Rate:
A 5% excise tax would apply to each qualifying remittance transaction.
Scope: The tax applies only to individuals who are not U.S. citizens or nationals. U.S. citizens and nationals are exempt from this tax. Thus, this includes:
- Green card holders
- H-1B and other work visa holders
- Other lawful non-citizen residents
Collection Responsibility:
The tax would be collected at the point of transfer by remittance providers, such as:
- Banks
- Money transfer services (e.g., Western Union, MoneyGram)
- Other financial institutions facilitating outbound transfers
These providers would be required to:
- Verify the sender’s citizenship or nationality status;
- Collect the 5% tax from the sender during the transfer process;
- Remit the collected amounts quarterly to the U.S. Treasury.**
If the provider fails to collect the tax, they become liable for the unpaid amount.
Effective Date:
If enacted, the remittance tax would apply to transfers made on or after January 1, 2026.
Legislative Status:
As of May 2025, the bill has passed the House Ways and Means Committee and is pending further debate and approval in Congress.
Exemptions and Credits
Exception for Citizens and Nationals:
U.S. citizens and nationals sending remittances through qualified providers will not be subject to the tax.
Refundable Tax Credit:
If a U.S. citizen or national is mistakenly taxed, they will be eligible to claim a refundable income tax credit to recover the tax paid.
Key Considerations
Conceptually, it bears some resemblance to India’s Tax Collected at Source (TCS) regime especially when applied to citizens of USA. However, there is a significant distinction as the U.S. proposal does not consider the origin of the funds. It is important to note that the proposed remittance tax is not an income tax, but rather an excise tax. This means the tax is levied on the act of transferring funds abroad, regardless of whether the money being sent was earned within the U.S. or brought into the U.S. from abroad.
This measure, if enacted, could significantly impact non-citizens who routinely send money to support family or meet financial obligations abroad. Ideally, the U.S. government should reconsider the structure of this tax—or at the very least, allow a mechanism for credit or refund in cases where funds are subsequently repatriated to the U.S. or were not sourced from U.S. income.
While this bill has not yet become law, it is essential to stay informed and begin evaluating potential financial and procedural impacts in anticipation of a January 1, 2026 implementation.
