US’ Proposed Remittance Transfer Tax for Non-Residents
The proposed remittance transfer tax is change for non-resident Indians (NRIs) in the United States. The House Ways and Means Committee has advanced the “One Big Beautiful” Tax Act. This legislation aims to extend provisions from the 2017 Tax Cuts and Jobs Act. It introduces a 5% tax on remittances sent abroad. This tax could affect many NRIs who regularly send money to their families in India. The bill is awaiting Senate review and is expected to be finalised by 4 July 2025.
What is Remittance Transfer Tax?
The remittance transfer tax is a proposed 5% tax on money sent from the US to other countries. It will apply to all qualifying transfers made on or after 1 January 2026. This tax is calculated based on the amount transferred, not on income. For example, sending $10,000 to India would incur an additional $500 in tax.
Who Will Be Affected?
The tax primarily targets non-citizen residents in the US. This includes NRIs on H1B, L1, or F1 visas and Green Card holders. Anyone who is not a verified US citizen will be impacted. There are limited exemptions for verified US citizens and transfers through qualified remittance providers.
How Will the Tax Be Collected?
The tax will be collected at the point of transfer. Remittance providers, such as banks or money transfer services, will collect the tax from the sender. They must deposit the tax with the US Treasury Department quarterly. If a provider fails to collect the tax, they will be liable for the payment.
Anti-Abuse Provisions
To prevent tax avoidance, the proposal includes anti-abuse rules. These rules target indirect methods used to evade the tax. For instance, using third parties or shell accounts to funnel money could result in penalties. This ensures compliance and fairness in tax collection.
Preparing for the New Tax
NRIs should take practical steps to prepare for the remittance tax. They should start tracking their remittances and maintaining clear records. Reviewing US residency and citizenship status is crucial. Staying informed about the bill’s progress in Congress is necessary, as amendments may occur. Consulting a tax advisor can help individuals assess their unique tax situations.
Implications of the Tax
If enacted, the remittance transfer tax will increase the cost of sending money abroad. This change will affect NRIs, especially those with ongoing financial obligations in India. The cumulative impact of this tax could be substantial over time.
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