Last Updated 1 year ago

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We are asked this question every week. Historically, the answer was straightforward. No, you don’t pay a tax on transferring money. You’ve already paid taxes on what you earned, so no additional tax is due now.

But this simple rule might soon change.

A recent draft of the “One Beautiful Bill,” passed by the House and sitting with the Senate, contains a section (Sec. 112105) that introduces a potential tax on transferring funds from the U.S. to a foreign country.

Who would this impact?

This proposed tax would apply primarily to non U.S. citizens holding green cards or visas. While there might be situations where you can reclaim the money through credits on your tax return, recovering these funds could be challenging or even impossible for many individuals. 

Even if recovery is feasible, the immediate cash flow impact could be significant.

Given past experiences with forms like the 8288 used in real estate transactions, which often create administrative nightmares, I’m concerned about how poorly implemented and burdensome this new regulation could become.

Why is this in the bill?

This measure aims to combat illegal immigration by restricting the ease of transferring money internationally without oversight. The government hopes to deter financial activities associated with unauthorized entry or residence in the country. 

However, this broad approach raises concerns because it doesn’t differentiate effectively between its intended targets and those legally residing in the U.S. Many legitimate residents, especially noncitizens holding green cards or visas, could find themselves unintentionally caught up in burdensome administrative processes and financial strains. It’s another example of a policy potentially impacting many unintended targets.

How would this tax work?

Banks or transfer agents would be required to withhold 3.5% of the amount being transferred abroad and remit it directly to the IRS. This additional withholding means extra paperwork and heightened compliance requirements for financial institutions, which could slow down your transactions and create administrative burdens. 

If you are relocating to the U.S. on a visa and need guidance on steps to take before going and how to file correctly once in the U.S., reach out.