In May, the House Republicans’ “One Big Beautiful Bill Act” passed through the US House of Representatives, outlining US President Donald Trump’s tax agenda for the next few years and introducing a new 3.5% tax on remittances by non-citizens.

A new analysis by FXC Intelligence, a data platform specializing in the cross-border payment and e-commerce sectors, explores the potential effects of the proposed tax on money transfers, warning of increased costs for consumers, the growth of informal and unregulated cross-border payment methods, and the introduction of operational challenges for money transfer providers.

Higher costs for migrant workers

Under the proposed law, this 3.5% tax would be charged on the amount being sent, meaning that it would come in addition to the costs charged by the remittance provider. According to the report, this means that an international transfer of US$100 could cost up to twice as much than it currently does, while sending US$1,000 could cost three times more.

Such an increase would pose a significant burden for migrant workers in the US, since many of them regularly send between US$200 and US$300 home every one or two months, constituting around 15% of what they earn. While this amount may seem modest, it can represent up to 60% of the recipient’s household’s total income.

Moreover, the United Nations (UN) has set out a sustainable development goal of reducing the global average cost for sending US$200 to 3% or less by 2030. The current average currently stands at 6.4% and a new US remittance tax would only worsen the situation, the report says.

The rise of informal cross-border payment methods

The analysis also warns that a 3.5% tax on remittance could change the way consumers send money, possibly pushing senders toward informal channels like “mules” and hawala networks, which are an informal method of transfers through unlicensed brokers.

This shift could hurt licensed money transfer companies, but also smaller businesses that partner with providers like grocery stores hosting Western Union outlets, which may see reduced footfall and revenue due to lost businesses.

Furthermore, an influx of “underground” transactions outside regulated money transfer providers would make it harder for law enforcement agencies from being able to track how money is moving, increasing risks tied to money laundering, terrorism financing, and drug trafficking.

Argentina is a relevant example of this. Under previous administrations, foreign exchange and capital controls drove transactions into underground banking networks, making it far harder to trace illicit activity. These restrictions also weakened the already vulnerable economy, contributing to stagnation and inflation.

Another possible effect of the bill is the rise in cryptocurrency-based remittances. Cryptocurrencies present an appealing alternative, especially in countries like Venezuela, Mexico, and Argentina where crypto adoption has been among the highest globally, according to a ChainAnalysis report.

Operational challenges for money transfer providers

In addition to losing customers to informal channels, licensed providers may be burdened by new compliance requirements.

According to Kathy Tomasofsky, Executive Director of the Money Services Business Association (MSBA), such taxes add expenses and introduce a new set of hurdles to companies without seeing a benefit, forcing them to either pass on those costs to consumers, or cut their services to existing states. Part of this is from the difficulty of installing systems for verifying and ensuring that customers are US citizens.

For example, if someone goes to Western Union to send money and shows their ID, Western Union would have to keep proof that they checked the person’s identity. This might mean taking a photo of the person’s passport and storing their information in a secure way. Setting up such a system would cost money and could lead to privacy concerns, because the company would be storing sensitive personal information.

Moreover, the bill mandates that only “qualified” money transfer providers who enter into specific agreements with the government can exempt US citizens and nationals from the tax. However, it remains unclear how to register as a qualified provider and whether it will cost any money to do so.

These ambiguities, combined with existing regulatory obligations, could lead some providers to charge the 3.5% tax to everyone, including US citizens, to avoid dealing with the hassle of checking everyone’s identity.

Discouraging foreign investment in the US

But perhaps more worryingly, the Tax Foundation, an international research think tank based in Washington, DC, warns that the tax could dissuade foreign investment in the US by complicating international transactions and potentially misclassifying fund movements as taxable remittances.

One example would be an international investor who maintains an account within the US for the purpose of business. If this investor wishes to transfer funds to another account outside the country, the transaction may bear the appearance of a remittance. But it is not one as the investor would simply be withdrawing their own money, not transferring funds to another person.

A money transfer provider may struggle to verify this, wrongfully charging the investor withdrawing their investment returns, and effectively disincentivizing further and future foreign investment in the US.

Another potential problem arises for businesses with international operations or supply chains. For example, a small business in the Detroit-Windsor, Ontario area may have hundreds of transactions with Canadian and US customers, suppliers, and employees. However, these transactions are not remittances, and would be subject to a burdensome process to prove so.

Missing the mark

Overall, industry experts believe that the proposed remittance tax will not be effective at achieving its intended goal of increasing federal revenue as people sending money abroad will likely find maneuvers to circumvent the charge. The Joint Committee on Taxation estimates that the tax will generate a mere US$26 billion over the next 10 years, a modest amount considering the administrative burden, and potential economic distortions associated with implementing such a tax.

The proposed “One Big Beautiful Bill Act” is a broad and ambitious piece of legislation that combines a wide range of fiscal, economic, and regulatory reforms into a single package. Its primary purpose is to reduce the federal deficit and streamline government spending ahead of a critical debt ceiling deadline.

Alongside the 3.5% tax on remittances, the bill includes reductions in non-military government spending and significantly cuts spending on the Supplemental Nutrition Assistance Program (SNAP) and Medicaid. It also allocates an additional US$150 billion for defense spending, while scaling back many clean-energy tax credits from the Inflation Reduction Act.

With the bill having passed the House of Representatives last month, the legislation is now moving to the Senate where key provisions are expected to be debated and amended. Once the Senate finalizes the text, it will head to the President’s desk, expected to be signed into law by early July.

Featured image: Edited by Fintech News Switzerland, based on images by Allexxandar and chayanuphol via Freepik