The 5% remittance tax threat: A new flashpoint between Mexico and the US

Remittances, one of Mexico’s main sources of foreign currency, are now in the crosshairs of U.S. tax policy. A U.S. House of Representatives committee on Wednesday approved a proposal to impose a 5% tax on remittances. Although Democrats rejected the bill, Republicans unanimously supported the initiative from their caucus. If implemented, more than 40 million people would be affected, including permanent residents and holders of non-immigrant visas; only U.S. citizens would be exempt. For Mexico specifically, this would represent a blow of at least $3.25 billion annually.

Alongside President Donald Trump’s anti-immigration policies, this new proposal to increase taxation on remittances has emerged. In addition to the bill, the U.S. president has previously stated he is finalizing a presidential memorandum to “end remittances” sent by illegal immigrants residing in the United States. The House aims to pass the proposal around May 26. The Senate, also with a conservative majority, must approve the bill. Lawmakers hope Trump will sign it into law by July 4. If ratified by both chambers, the new tax would take effect in 2026.

Given the importance of remittances to the Mexican economy, alarms have already been raised. President Claudia Sheinbaum described this week’s proposal to impose a 5% tax on remittances as “unacceptable.” “We do not agree [with the bill]. It is, even in the United States, unconstitutional, because it would impose a double tax, since Mexicans living in the United States already pay taxes,” the president declared at her regular morning press conference. In line with this, on Thursday, the Chamber of Deputies joined the Senate in a request to address the bill with U.S. legislators.

One of the greatest economic achievements of Mexicans lies across the border. Last year, remittances reached a record high, surpassing $64.75 billion, and this upward trend has continued this year. In the first four months of 2025, Mexicans residing in the U.S. sent $14.27 billion to Mexico. The average remittance was $383, and 99% of transactions were made through electronic transfers, according to the Bank of Mexico.

The dollars sent by Mexicans, mainly from the U.S., exceed those generated by the agri-food sector, foreign direct investment, oil sales abroad, and the economic impact of international tourism. According to World Bank data, remittances from the United States totaled more than $656 billion in 2023. India, Mexico, and China are the largest recipients of these funds.

For years, remittances have provided a lifeline to the Mexican economy, particularly in the country’s most marginalized and rural areas. According to a study by the Center for Latin American Monetary Studies (Cemla), 52% of households receiving remittances live in towns with fewer than 15,000 people. Among the states that benefit most from remittances are Jalisco (10%), Michoacán (9.7%), and Guanajuato (8.4%), states with large migrant populations in the United States.

Gabriela Siller, head of analysis at Grupo Financiero Base, estimates that a 5% tax on remittances, assuming all else remains constant, would represent a $3.25 billion hit in one year. This would reduce Mexico’s GDP by 0.18 percentage points in a year. If under a central scenario the Mexican economy is expected to show 0% growth this year, with the remittance tax taking effect in July, GDP would fall to approximately 0.09%.

Siller adds that imposing a tax on remittances will push Mexican migrants to seek new ways to send money to their families in Mexico, often through informal channels such as sending money with travelers or U.S. citizens. “It is important to remember that part of the initiative includes blocking remittances sent by undocumented individuals. This measure would be even more damaging, as it could halt about 30% of remittances — or roughly $19 billion annually — causing Mexico’s GDP to drop by 1% in one year or 0.5%,” she said.

In an analysis, Banamex notes the measure has a significant political component that impacts the most vulnerable. “Our baseline scenario is that the tax would lead to a decrease in remittance flows by up to 0.1% of GDP compared to a no-tax scenario. Revenue collection from imposing the remittance tax abroad seems limited,” the financial institution stated.

Enrique Díaz-Infante, senior financial sector specialist at the Espinosa Yglesias Center for Studies, adds that the 5% tax proposed by Trump will negatively impact the welfare of the country’s poorest families. “Remittances have a significant social impact on recipient families, as they are used for housing construction, health, education, general subsistence expenses, and entrepreneurship in subsistence business units,” he concluded.

Sign up for our weekly newsletter to get more English-language news coverage from EL PAÍS USA Edition