Impending US tax on remittances expected to impact Jamaican households and businesses

Effective December 31 this year, Jamaicans in the United States sending money to their relatives back home will have to pay a one per cent excise tax on such transactions.

The one per cent tax is set out in the One Big Beautiful Bill Act passed by the US Congress, which is expected to be signed by President Donald Trump today.

By charging senders’ a one percent fee the bill raises the cost of remittances. This could lead some migrants to send less money or send money less frequently, negatively affecting recipients’ spending power in Jamaica.

Jamaica is expected to experience a direct economic downturn from the new US remittance tax as it represents a transfer of resources to the US Treasury. The tax is projected to raise roughly US$10 billion in revenue across all countries.

What this means for the Jamaican economy is that if remittances amount to US$2 billion for the year, the one per cent tax means that US$20 million will be paid to the US treasury. Jamaica currently receives roughly US$3.3 to US$3.5 billion in remittances annually, the majority of which comes from Jamaicans in the United States. Remittances currently account for 17 to 20 per cent of Jamaica’s gross domestic product (GDP).

The Bank of Jamaica has already flagged US policy changes on remittances as a downside risk to Jamaica’s economic outlook, therefore, any reduction in remittance inflows could constrain household consumption, education and healthcare spending as well as small business support in Jamaica, according to an analysis done for the Jamaican Government of the bill’s provisions.

In the original version of the bill passed by the US House of Representatives, the tax on remittance was set at five per cent. However, the US Senate reduced it to one per cent.

The new tax will be imposed on remittances sent as cash, money orders, cashier’s checks and similar such instruments. Funds sent by debit or credit cards or bank wire transfers will not attract the new tax.

According to the provisions of the bill, the new tax will be limited mainly to green card holders or permanent residents and visa holders. Citizens sending money to relatives in Jamaica will not be subject to the new tax.

US states with high Jamaican populations, such as New York and Florida, will be impacted the most by the new excise tax.

The fear is that people who rely on cash remittances will try to find other means to send money home to relatives to avoid paying the tax.

This could lead to the use of unregulated means to transmit funds.

For Jamaica, even a small percentage loss in remittance income can have outsized effects. Families use remittances for daily living expenses, education, healthcare, and investing in small enterprises.

“A 1% tax effectively reduces the disposable income of remittance-receiving households – akin to a new import duty on foreign aid from diaspora. Over time, this could modestly dampen consumer spending and poverty alleviation efforts. Additionally, if migrants reduce the amount they send to offset the fee, local businesses in Jamaica that depend on remittance-fuelled spending may see lower sales. Despite the tax rate being pared down to 1%, it could be a setback for financial inclusion in the region, by nudging transactions outside formal banking channels. This provision is a focal point of concern, as it effectively monetizes diaspora earnings and could undermine the vital flow of remittances that sustain many families and stabilize local economies,” stated the analysis seen by The Gleaner.

Because the tax applies only to cash-based transfers and not to bank transfers or digital payments, many Caribbean migrants may try to avoid the fee by using electronic methods. Those with bank accounts might switch to online remittance services or direct bank wires, which are exempt. However, unbanked or older migrants who rely on cash services, like Western Union, will have no choice but to pay the one per cent fee.

There is also concern that a tax could drive some senders to informal or illicit channels, such as money couriers, to evade the fee, undermining the formal remittance industry and financial transparency.

The legislation also includes anti-avoidance measures. It references applying anti-conduit financing rules to remittances and may entail increased oversight of money transmitters and mandatory use of regulated channels.

While this aims to prevent tax evasion and money laundering, it could also increase compliance costs for remittance companies and potentially slow down transfers.

Caribbean-focused money transfer operators might face new reporting requirements and will need to adjust their systems to collect the tax and remit it to the US Treasury, the analysis noted.

Jamaicans in the Diaspora have come out against the imposition of the new fee.

Former Jamaica Global Council member Dr Allan Cunningham said that it is devastating news, especially for poor families that depend on remittances.

“Poorer families are going to feel more economic hardships and children might have it difficult attending schools. No doubt this will have a crippling effect on the country’s economic health,” he told The Gleaner.

He called it a sad day for the Jamaican diaspora.

- Lester Hinds

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