Key Takeaways
• The OBBBA imposes a 3.5% excise tax on all remittances sent from the U.S. starting July 3, 2025.
• Undocumented workers without SSNs cannot claim tax breaks, paying full 3.5% tax with severe penalties for avoidance.
• Financial institutions collect and report remittance taxes; non-compliance can lead to felony charges and deportation.
Overview: Remittances, Undocumented Workers, and the 3.5% Excise Tax under OBBBA
Remittances—money sent by workers in the United States 🇺🇸 to family members in other countries—are a lifeline for millions of families around the world. Many undocumented workers in the United States 🇺🇸 regularly send part of their earnings home to help pay for food, school, and medical care. However, a new law called the One Big Beautiful Bill Act (OBBBA), which took effect on July 3, 2025, has changed the way these remittances are taxed.
Under OBBBA, a 3.5% excise tax is now charged on all remittances sent abroad, regardless of the sender’s immigration status. This new tax especially affects undocumented workers, who already face many financial and legal challenges. This article explains what the new tax means, how it works, who is affected, and what practical steps undocumented workers and their families should consider.
What Is a Remittance and Why Do Undocumented Workers Send Them?
A remittance is money that someone working in one country sends to family or friends in another country. For undocumented workers in the United States 🇺🇸, sending remittances is often a way to support loved ones back home. These payments help pay for basic needs like food, rent, school fees, and medical bills. In many cases, families depend on these funds to survive.
Before the OBBBA, undocumented workers could send remittances through banks, money transfer companies, or other financial services. They paid regular transfer fees, but there was no special tax just for sending money abroad.
The OBBBA and the 3.5% Excise Tax: What Changed?
The One Big Beautiful Bill Act (OBBBA) was passed by the Senate in mid-2025. One of its main goals is to raise money for immigration enforcement and social services by taxing money sent out of the United States 🇺🇸. The law introduced a 3.5% excise tax on all remittances sent abroad, which means that for every $100 sent, $3.50 is taken out as tax.
Key Points about the 3.5% Excise Tax:
– Applies to Everyone: The tax is charged on all remittances, no matter who sends the money. This includes U.S. citizens, legal residents, and undocumented workers.
– No Tax Breaks for Undocumented Workers: To get any tax breaks or exemptions, the sender must provide a Social Security number (SSN). Most undocumented workers do not have an SSN, so they cannot avoid or reduce the tax.
– Collected by Financial Institutions: Banks and money transfer companies must collect the tax at the time of transfer and send it to the government.
– Strict Enforcement: The law includes tough penalties for not paying the tax, including felony charges and possible deportation for undocumented workers.
How Does the Tax Work in Practice?
Let’s look at the step-by-step process for an undocumented worker sending a remittance under the new law:
- Choosing a Transfer Method:
The worker goes to a bank, money transfer service, or uses an online platform to send money abroad. - Providing Identification:
The sender may be asked for identification. However, without a Social Security number, they cannot claim any tax breaks. -
Tax Deduction:
When the money is sent, the financial institution automatically deducts 3.5% of the total amount as tax. For example, if $500 is sent, $17.50 is taken out for the tax, and only $482.50 reaches the family. -
Reporting to Authorities:
The financial institution reports the transaction and the tax payment to federal authorities. -
No Refunds or Credits:
Because undocumented workers do not have SSNs, they cannot get a refund or credit for the tax paid. -
Penalties for Avoidance:
If someone tries to avoid the tax by using informal channels or false information, they risk felony charges and possible deportation.
Eligibility and Requirements for Sending Remittances
Who Can Send Remittances?
– Anyone in the United States 🇺🇸 can send remittances, including undocumented workers, as long as they use a legal financial service.
What Do You Need?
– Identification: Most transfer services require some form of ID, but not all require a Social Security number just to send money.
– Social Security Number (SSN): Needed only if you want to claim a tax break or exemption, which is not possible for most undocumented workers.
– Payment: The sender must pay the amount to be sent, plus the 3.5% excise tax and any regular transfer fees.
Are There Limits?
– Some money transfer services have limits on how much can be sent at one time or per month. These limits vary by company and country.
Rights and Risks for Undocumented Workers
Rights:
– Right to Use Legal Services: Undocumented workers can still use banks and money transfer companies to send remittances.
– Right to Privacy: Financial institutions must follow privacy laws, but they are also required to report remittance transactions to the government.
Risks:
– Higher Costs: The 3.5% excise tax makes it more expensive to send money home.
– No Tax Relief: Without an SSN, there is no way to avoid or reduce the tax.
– Legal Risks: Trying to avoid the tax by using informal or illegal channels can lead to serious legal trouble, including felony charges and deportation.
– Increased Scrutiny: Because the law requires strict reporting, undocumented workers may feel more exposed to government monitoring.
Comparing the Old and New Systems
Before OBBBA:
– No special tax on remittances for undocumented workers.
– Only regular transfer fees applied.
– Less government monitoring of remittance flows.
After OBBBA:
– 3.5% excise tax on every remittance, with no exemptions for undocumented workers.
– Financial institutions must report all remittance transactions.
– Tough penalties for tax avoidance or using informal channels.
Real-World Example: The Impact on a Family
Let’s consider Maria, an undocumented worker in the United States 🇺🇸 who sends $300 each month to her parents in El Salvador 🇸🇻. Before the OBBBA, Maria paid a $5 transfer fee, so her parents received $295. Now, with the 3.5% excise tax, $10.50 is taken out as tax, plus the $5 fee. Her parents now receive only $284.50. Over a year, Maria’s family loses $126 to the new tax—money that could have paid for food or school supplies.
Why Was the Excise Tax Introduced?
The government introduced the 3.5% excise tax as part of a larger effort to raise money for immigration enforcement and social services. Supporters of the tax argue that it helps cover the costs of public services used by immigrants and discourages illegal immigration. They also say it makes the system fairer for taxpayers.
However, many immigrant advocates say the tax unfairly targets undocumented workers and their families, who already pay other taxes (like payroll and sales taxes) but often cannot access public benefits. They warn that the tax could push people to use unsafe, informal ways to send money, putting both senders and receivers at risk.
Enforcement and Compliance: What Happens If You Don’t Pay the Tax?
The OBBBA includes strict rules to make sure the tax is collected:
- Financial Institutions’ Role: Banks and money transfer companies must collect the tax and report each transaction.
- Penalties for Institutions: If a financial institution fails to collect the tax, it can face heavy fines and other penalties.
- Penalties for Individuals: If a person tries to avoid the tax by using false information, hiding the transfer, or using informal channels, they can be charged with a felony. For undocumented workers, this can lead to deportation and being permanently barred from returning to the United States 🇺🇸.
Alternative Channels and Their Risks
Because of the new tax, some undocumented workers may look for other ways to send money home, such as:
- Cryptocurrencies: Digital currencies like Bitcoin can be used to send money without going through banks, but they are risky and not always legal.
- Informal Transfer Systems: Some people use unregulated networks or cash couriers. These methods are often illegal and can lead to loss of money or legal trouble.
- Friends or Relatives: Asking someone with legal status to send money on their behalf, but this can also create legal risks for both parties.
The OBBBA specifically targets these alternative channels, increasing penalties for anyone caught using them to avoid the tax.
Practical Implications for Undocumented Workers and Their Families
Financial Burden:
The 3.5% excise tax reduces the amount of money families receive. For low-income families, even a small loss can have a big impact on daily life.
Legal Risks:
Trying to avoid the tax can lead to serious legal problems, including deportation.
Limited Options:
Without a Social Security number, undocumented workers have no way to reduce or avoid the tax.
Increased Stress:
The new law adds to the stress and uncertainty faced by undocumented workers, who already live with the fear of deportation and financial hardship.
Stakeholder Perspectives: What Are People Saying?
- Immigrant Advocates:
They argue that the tax is unfair and hurts the most vulnerable families. They worry it will push people into unsafe, illegal channels and make life even harder for undocumented workers. -
Government Officials:
They say the tax is needed to help pay for public services and to discourage illegal immigration. They believe strict enforcement is necessary to make the system work. -
Financial Institutions:
Banks and money transfer companies now have more work to do, collecting the tax and reporting transactions. They face heavy penalties if they do not follow the rules.
As reported by VisaVerge.com, the debate over the excise tax is likely to continue, with possible legal challenges and calls for reform in the future.
What Should Undocumented Workers Do Now?
If you are an undocumented worker who sends remittances, here are some practical steps to consider:
- Use Legal Channels: Always use banks or licensed money transfer services to send money. Avoid informal or illegal methods.
- Plan for the Tax: Remember that 3.5% of your remittance will be taken out as tax. Adjust the amount you send if needed.
- Keep Records: Save receipts and records of all transfers in case you need to prove you paid the tax.
- Stay Informed: Laws and rules can change. Check official sources like the U.S. Department of the Treasury for updates on remittance taxes and compliance.
- Seek Help: If you have questions or need help, contact immigrant advocacy groups or legal aid organizations. They can provide information and support.
Conclusion: The Road Ahead
The 3.5% excise tax on remittances under the OBBBA is a major change for undocumented workers and their families. While it is still possible to send money home, the cost is now higher, and the risks for non-compliance are greater. Undocumented workers must be careful to follow the law, use legal transfer services, and plan for the extra cost.
The debate over the fairness and impact of the tax is ongoing. Some hope that future changes to the law will reduce the burden on undocumented families, while others believe the tax is necessary for public funding and enforcement. For now, undocumented workers must adjust to the new reality and seek out trusted sources of information and support.
For more information on remittance taxes and compliance, visit the U.S. Department of the Treasury or consult with a qualified immigration attorney. Staying informed and following the rules is the best way to protect yourself and your family in this changing environment.
Learn Today
Remittance → Money sent by workers in one country to support family or friends in another country.
Excise Tax → A specific tax charged on certain goods or services; here, 3.5% on all remittances sent abroad.
OBBBA → One Big Beautiful Bill Act passed in 2025, introducing new taxes on money transfers abroad.
Social Security Number (SSN) → A unique identifier needed to claim tax breaks under the OBBBA on remittances.
Undocumented Worker → A person working in the U.S. without legal immigration status or proper work authorization.
This Article in a Nutshell
The OBBBA’s new 3.5% excise tax on all remittances affects undocumented workers the most. Without an SSN, they pay full tax, face legal risks, and have limited sending options. Families lose crucial funds as enforcement tightens, urging use of legal channels for safer transfers and compliance.
— By VisaVerge.com
