Editor's Note: This analysis builds on ongoing migration research AidData is conducting, including into how to better estimate global remittance flows and how to maximize their benefits within local communities.
Remittances, the money migrants send home, are a lifeline for hundreds of millions of families worldwide. To most Americans, a 1% tax on these transfers may sound modest. But behind that small number is a regressive and unfair policy that risks pushing millions into the shadows and penalizing the very people who can least afford it.
Last month, Congress passed a 1% tax on money sent abroad that will come into effect in January 2026—a scaled-back version of an earlier 5% proposal. The updated version removes a carveout for U.S. citizens and is projected to raise nearly $10 billion. But lowering the rate doesn’t make the policy fairer. It makes it more deceptive.
The tax applies only to cash-based transfers, the kind used most often by low-income and undocumented migrants. Transfers through U.S. banks are exempt. That creates a two-tiered system: one for the banked, and one for everyone else.
Who a remittance tax really hurts
Roughly 40 million immigrants live in the United States. Even if only a quarter send money home regularly, as estimates suggest, this tax would hit 10 to 12 million people. And beyond U.S. borders, it would ripple out to the 800 million family members who rely on remittances to survive. These transfers aren’t optional. They pay rent, fund school fees, and cover hospital bills in places like the Philippines, Mexico, Haiti, and Yemen.
But the burden won’t be distributed equally. Migrants with bank accounts will face no tax. The cost will fall squarely on those who rely on services like Western Union, MoneyGram, or neighborhood cash agents, often because they lack access to formal banking. These are not high-dollar transactions. They’re $200 here, $300 there, routine acts of care that families depend on.
The industry knows what’s at stake. In May 2025, when an earlier version of the bill proposed a 3.5% tax, a coalition of fintech and money transfer companies, including the American Fintech Council and the Financial Technology Association, sent a letter to Congress warning that it would “harm consumers, raise costs, and drive transactions underground.” Although the latest version of the bill lowers the rate to 1%, the core risks remain. MoneyGram’s CEO called the proposal “unfortunate,” emphasizing that remittances are not a luxury but a lifeline.
As one Yemeni interviewee told us, “Remittances are the only reliable income stream for millions of people.”
Small tax, big consequences
In 2024, people living in the U.S. sent $93 billion in remittances abroad—more than any other country. Nearly 70% of those transfers were paid in cash, according to the World Bank. That’s about $69.5 billion subject to the proposed tax. A 1% levy on these flows could raise close to $700 million, but that estimate is misleading.
Even small increases in cost push migrants away from formal systems. Using a conservative elasticity estimate of –0.22, we project that a 1% tax would reduce cash-based remittances by $2.71 billion in 2025, a 2.66% drop from current levels. That’s not money saved—it’s money pushed into the shadows, rerouted through hawala networks, unlicensed couriers, or trusted friends.
Under a 1% tax scenario, flows dip modestly on paper, but the real story is what becomes invisible. The money doesn’t stop moving. It just stops being traceable.
When flows go underground, oversight disappears. Anti-money laundering and counter terrorism efforts weaken. Illicit actors blend in more easily. The result: a less transparent, less secure financial system, all for marginal revenue gains.
And the costs go beyond security. Remittance taxes also raise the average cost of sending money, undermining global efforts to reduce fees. The U.S. is already among the most expensive G20 countries for remittances to low- and lower-middle-income nations. A 1% surcharge only worsens this standing and pushes the U.S. further from the global goal of lowering average transfer costs to 3%.
With a 1% tax, U.S. costs surge past those of peer countries. The result is a policy that punishes the poorest senders while leaving large-scale illicit flows untouched.
The real economic cost
Supporters of the tax say it will deter undocumented migration and raise funds. It will do neither.
First, it will likely raise far less revenue than projected, as migrants shift to informal systems. Second, many people migrate precisely to send remittances home to support their children, elderly parents, or to rebuild after a crisis. Taxing remittances doesn’t eliminate that need; it just makes it harder to fulfill.
And third, the tax harms the U.S. economy. When costs rise, migrants don’t cut back on the money they send. They cut back on their spending at home, in local grocery stores, small businesses, and service providers. That means less economic activity in U.S. communities, a concerning prospect for the nation's economic health.
Even as a fiscal measure, this idea fails. A 2016 Government Accountability Office report warned that a remittance tax would raise minimal revenue and could cost more to enforce than it brings in. In other words, it's not a sound fiscal policy.
There’s a better way
If Congress wants to fight illicit finance, taxing low-income migrants is the wrong place to start. There are better tools, and it's time to start using them to bring hope for a fairer and more effective financial system.
First, reduce remittance costs. In the U.S.–Mexico corridor, competition cut remittance fees by over 50% between 1999 and 2005. Lower costs don’t just help families; they also pull more flows into the formal, regulated system.
Second, tailor the policy to the problem. Most remittances are minor, recurring, and deeply personal. A blanket tax punishes people sending $200 a month while doing little to stop major illicit flows. A tiered fee structure or an exemption for small transfers would allow for oversight without hurting the poor.
Third, expand financial inclusion. Invest in digital payment systems that reach unbanked communities. Ironically, this is more likely to reduce migration pressure than any remittance tax ever could.
Don’t mistake smaller for smarter
A lower tax rate on remittances doesn’t make this policy better. It makes it easier to ignore its consequences.
By targeting only cash-based flows, this tax entrenches inequity. It claims to raise revenue but may shrink the formal financial sector. It promises transparency but incentivizes opacity. And it penalizes the very act of sending love and support across borders.
That’s not sound fiscal policy. That’s a penalty on care.
