Congress Mulls a Tax on Cross Border Remittances

Several organizations representing the payments industry sent a letter to Congress late Wednesday urging lawmakers not to pass legislation that will tax cross-border remittances originated in the United States and will require money transmitters to gather identity and citizenship verification data from the sender. The bill has advanced to the Senate after being passed in the House of Representatives.

The letter, drafted by seven organizations including the Electronic Transactions Association, was addressed to Senators Mike Crapo of Idaho, chairman of the Senate Committee on Finance and Ron Wyden of Oregon, ranking member of the same committee.

The bill calls for a 3.5% tax on the amount of the cross-border remittances, to be paid by the sender at the time of the transaction. The tax would be levied on top of any consumer fees charged by financial institutions, licensed money transmitters, and digital-asset and virtual-currency platforms. Money transmitters would be responsible for collecting the tax and sending the revenues to the Treasury Department.

In addition, the bill requires money transmitters to verify the sender’s identity and status as a U.S. citizen. This would require money transmitters to gather such personal information as the sender’s name, address, and Social Security Number, report that information to the Treasury Secretary, and keep that data secure. Senders would be required to verify their identity and citizenship for each cross-border remittance.

The provision to require proof of citizenship is reportedly being driven by the Trump administration’s effort to crack down on illegal immigrants by making it more expensive and complicated to originate cross-border transactions in the U.S., according to payments experts. Similar legislation was introduced by the Trump administration in 2019 to help fund the administration’s call for a border wall with Mexico.

If the legislation passes, the requirement to verify a sender’s identity and citizenship will require money transmitters, which include small businesses, to put procedures and security in place that will increase their cost of doing business. Those cost increases will most likely be passed along to senders, the letter argues.

Further complicating matters is that the bill “does not establish a framework” for how a money transmitter “would verify the status of a sender,” the letter says. The collection of personal information to verify a sender’s identity and citizenship creates “a very serious privacy concern,” the letter says.

“The bill creates challenges for businesses of all sizes for data collection, compliance, and getting the taxes collected to the Internal Revenue Service,” says Scott Talbott, executive vice president at the Electronic Transactions Association. “There will be some businesses that struggle with the data gathering aspects of this legislation.”

For U.S. citizens sending cross-border payments, the legislation includes a provision that allows them to file for a credit on their federal tax return for cross-border remittance taxes paid. Signatories of the letter caution, however, that many U.S. citizens may forget to take advantage of the provision or may not apply for the credit because of the extra work involved.

The letter also raises concerns that, if passed, the bill will force many users of cross-border money remittance services to turn to non-licensed money transmitters to avoid paying the tax.

“Taxing remittances will drive consumers towards unregulated, underground channels to avoid added costs, posing direct risks to national security and financial integrity,” the letter says. “U.S. financial-services providers will face significant new compliance and reporting requirements without corresponding benefits to system safety or soundness.”  

Higher service fees levied by money transmitters to compensate for increased operating costs could be another disincentive to send cross-border payments through legitimate channels, the letter says.

“On paper, this bill is attractive because it addresses immigration and raises tax revenue for the government, but there will be implementation costs that get passed along to the sender and data gathering challenges [for money transmitters],” Talbott says.

Besides the ETA, other signatories are the Financial Technology Association, The Money Services Business Association, The American Fintech Council, The Money Services Roundtable, The Innovative Payments Association, and INFiN, a financial-services alliance.