Trump’s Tax on Migrant Remittances Faces Global Backlash
Approved by the House, a 3.5% tax on non-citizen money transfers could disrupt rural economies and push remittances into unregulated channels.
WASHINGTON — A newly passed tax on remittances sent by undocumented migrants from the United States is generating political blowback at home and abroad, as experts warn of economic hardship for families in Latin America and a likely surge in informal money transfers.
The measure, included in a sweeping tax package (One Big Beautiful Bill) backed by President Donald Trump and approved by the House last week, imposes a 3.5% levy on cross-border remittances made by individuals who are not U.S. citizens or nationals. The Senate is expected to take up the legislation in the coming weeks, where Trump’s party holds the majority.
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Supporters say the tax will raise billions in new revenue and help curb illegal immigration, but critics—from migrant advocates to foreign governments and financial analysts—warn it could disproportionately hurt poor households, drive transactions underground, and undermine relationships with key U.S. allies.
The Trump administration estimates the tax could bring in $22 billion from 2026 through 2034. But that number may be optimistic. Many remittance senders are already expected to seek workarounds, including cryptocurrency, cash smuggling, or enlisting U.S.-born acquaintances to wire money on their behalf.
A Lifeline Under Threat
Ramona Luna Mendoza, 58, lives in Puebla, Mexico, supported by weekly remittances from her sisters in Los Angeles. The money—roughly $100 to $150 per week—pays for food and laborers to help on her family farm. “Of course it’s going to affect us,” she said by phone. “If they have to pay more, they won’t be able to send us the same amount.”
According to the World Bank, the U.S. is the world’s largest source of remittances, with $656 billion sent abroad in 2023. Mexico received a record $64.75 billion last year, more than $62 billion of it from the U.S. That total represents about 4% of Mexico’s GDP—surpassing even foreign direct investment.
President Claudia Sheinbaum of Mexico called the tax “discriminatory” and warned it could destabilize rural communities. “This reduction is not only important for Mexico,” she said of the drop from an initially proposed 5% rate, “it’s important for all countries, even for India.”
Sheinbaum’s government, which lobbied to reduce or eliminate the tax, is continuing its push in Washington. “The tax is already beginning to be seen as a regressive measure by many members of Congress,” said Esteban Moctezuma, Mexico’s ambassador to the U.S.
Economic Risks and Legal Loopholes
Experts say the policy may backfire, encouraging the use of informal and potentially illicit remittance channels.
“It is essentially a tax on the very poor,” said Andrew Selee, president of the Migration Policy Institute. He noted that even U.S. citizens sending money abroad will now be required to prove their status for tax exemption, a move that could cause confusion and deter legal users of transfer services.
The Financial Technology Association, representing digital payment platforms, has also criticized the tax. “These services are not luxuries,” the group said in a letter to Congress. “They are essential tools for paying bills, supporting family members abroad, and managing daily finances.”
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In rural U.S. communities, where many financial institutions rely on remittance fees, small businesses could also take a hit. Analysts expect a spike in remittance transfers ahead of the Jan. 1, 2026, implementation date.
According to Gabriela Siller, chief economist at Banco Base, the tax could cost Mexican recipients approximately $2.3 billion—just 0.04% of U.S. revenue, but deeply significant for households in states like Michoacán and Zacatecas, where remittances make up more than 10% of GDP.
The banking group BBVA projected the impact at about $1 billion under the revised 3.5% rate, warning that “favorable conditions for the emergence of informal remittance mechanisms” could increase both legal and illegal shadow markets.
Unequal Impact Across the Region
While Mexico has mounted a diplomatic response, Central American countries—where remittances represent over 20% of GDP—have so far responded with relative silence.
“This will hit the poorest the hardest,” said Jesús Cervantes González of the Center for Latin American Monetary Studies, noting that Guatemalans and Hondurans send a much larger share of their income abroad and are more likely to be undocumented.
Despite a sharp drop in new border crossings under Trump’s second term, mass deportations have yet to materialize. Experts remain uncertain how the remittance tax will interact with broader immigration enforcement.
“There may be an impact,” said Ricardo Barrientos, director of the Central American Institute for Fiscal Studies, “but I’m not sure if it’ll be noted at the macro level.” Still, he added, “so long as a migrant stays in the U.S., that person will find the way to send the money—because it’s their lifeline.”