The United States plans to impose a 5% tax on remittances from non-citizens, affecting millions of legal immigrants first and foremost

The Trump administration has taken another step, proposing a remittance tax for non-citizens, which may affect millions of legal immigrants.

On May 16, it was reported that a new bill proposed by Republican members of the U.S. Congress plans to impose a 5% tax on all remittances sent overseas by non-citizens, impacting H-1B, F-1 visa holders, and green card holders.

Sandeep Jhunjhunwala, a partner in merger and acquisition tax at Nangia Andersen LLP, stated:

"This represents a significant shift in U.S. tax policy, particularly for foreign workers. The proposal only exempts U.S. citizens and nationals who remit through qualified remittance providers, affecting millions of legal immigrants, including green card holders, work visa holders, and non-resident foreigners."

Additionally, the bill will also impact the compensation and benefits levels of non-U.S. residents, as it requires that any after-tax income from stock options earned by foreigners in the U.S. that is transferred overseas will also be subject to a 5% tax.

The Impact May Exceed Expectations

Reports indicate that this proposal will have far-reaching effects on the global remittance landscape. For example, a family that remits $1,000 overseas each month would only be able to send $950 after the 5% tax, or they would have to incur additional costs to maintain the same remittance amount.

Taking Indians as an example. Indians are one of the top three immigrant groups in the U.S., with nearly 2.3 million Indians working in the U.S. through various visa programs. These Indians are one of the largest sources of remittances to India. In 2023 alone, they remitted over $23 billion back home.

Tax experts warn that the impact of this tax goes far beyond individual remittances and may also affect compensation and benefits levels. Sandeep Jhunjhunwala stated:

"Many foreigners receive RSUs (Restricted Stock Units) as part of their compensation. When these RSUs vest and are sold, the proceeds are often transferred overseas. According to the proposed remittance tax, even such transfers of after-tax earnings will be subject to a 5% tax."

Reports also indicate that critics warn this could push remittances toward informal or unregulated channels and decrease the attractiveness of the U.S. for skilled workers from abroad.

Some believe this may put pressure on employers to raise salaries to offset this tax.

Others argue that this tax unfairly targets legal immigrants and could harm relations between the U.S. and the countries where these legal immigrants come from.

Akhilesh Ranjan, a former member of the Indian Central Board of Direct Taxes (CBDT) and currently with PwC, stated: "This taxation clearly discriminates against non-U.S. citizens, who contribute to the U.S. economy just like U.S. citizens."