The New 1% Remittance Tax Is Already in Effect. Here's Who It Hits and How to Avoid It.

I want to explain this clearly, because the clients I work with — immigrants, expats, dual citizens, people supporting family in other countries — are exactly who this law affects. And the good news is that most of them can avoid the tax entirely by changing how they send money.

What the Law Does

Section 4475 of the Internal Revenue Code, added by the One Big Beautiful Bill Act signed on July 4, 2025, imposes a 1% excise tax on outbound remittance transfers from the United States to recipients in foreign countries.

The tax is straightforward in concept: if you walk into a Western Union, MoneyGram, or any other remittance transfer provider and hand over cash to send $1,000 to a family member overseas, the provider is required to collect an additional $10 from you and remit it to the IRS.

The tax applies when the sender provides any of the following to the remittance transfer provider:

• Cash
• A money order
• A cashier's check
• Any similar physical instrument (the Treasury has authority to expand this list)

The sender is legally liable for the tax. But the remittance transfer provider is required to collect it. If the provider fails to collect, the provider becomes liable. That creates a strong incentive for providers to build the tax into every qualifying transaction — which they are already doing.

Who This Affects

This hits a specific population hard: people who send money abroad using cash-based services. In my practice, that includes:

• Immigrants sending remittances to parents, siblings, or children in their home countries
• Foreign nationals working in the U.S. on visas who support families overseas
• Small business owners who pay foreign vendors or contractors through remittance services using cash
• Anyone who regularly uses cash-based money transfer services for international payments

On a $500 monthly transfer, the tax is $5. That sounds small. Over a year, it is $60. For someone sending $2,000 a month — common for families supporting dependents abroad — it is $240 a year. For higher amounts, it scales accordingly.

The Two Exemptions

The law carves out two clear exemptions. If your transfer falls into either category, the 1% tax does not apply.

Exemption 1: Transfers from a regulated U.S. financial institution account. If the funds you are sending are withdrawn from an account at an FDIC-insured bank, a credit union, a commercial bank or trust company, a registered broker-dealer, or a U.S. branch of a foreign bank — and that institution is subject to the Bank Secrecy Act reporting requirements — the transfer is exempt. In plain terms: if you initiate your international transfer from your U.S. bank account rather than walking in with cash, you do not owe the tax.

Exemption 2: Transfers using a U.S.-issued debit or credit card. If you fund the remittance transfer with a debit card or credit card issued in the United States, the transfer is exempt.

Both exemptions target the same behavior: they distinguish between transfers funded by traceable sources (bank accounts, cards) and transfers funded by untraceable sources (cash, money orders). The legislative intent is to push international transfers into the regulated banking system.

What This Means Practically

If you currently send money abroad using cash at a remittance service, you have two options:

Option 1: Open a U.S. bank account and send from it. Many banks and credit unions offer low- or no-fee accounts. Once you have an account, you can use your bank's international wire transfer service or link your account to a remittance provider like Wise, Remitly, or even Western Union's online platform. As long as the funds come from your bank account — not from cash you hand over at a counter — the tax does not apply.

Option 2: Use a U.S.-issued debit or credit card. If you already have a debit card tied to a U.S. bank account, you can use it to fund transfers through most major remittance platforms. Same result: no tax.

For clients who do not have a U.S. bank account, this is the moment to open one. The cost of the tax over time will almost certainly exceed any fees associated with maintaining a basic checking account.

What the Proposed Regulations Clarify

The IRS proposed regulations published on April 10, 2026, address several questions that were left open by the statute:

What counts as a “similar physical instrument”? The proposed rules would include traveler's checks and any other physical instrument that functions as a cash equivalent for funding a remittance transfer. The IRS is keeping this category open-ended, which means new instruments could be added.

Anti-avoidance rules. The proposed regulations include a provision allowing the IRS to disregard transactions structured to avoid the tax. The regulations specifically call out a scenario where a remittance transfer provider issues general-use prepaid cards to customers paying with cash — essentially laundering a cash transaction through a card to avoid the excise tax. That will not work. The IRS will look through the form of the transaction to its substance.

Small-value exception. Transfers of $15 or less are excluded from the definition of a remittance transfer entirely. This mirrors the existing Electronic Fund Transfer Act threshold and is not practically significant for most people sending regular support abroad.

Reporting and deposit obligations. Remittance transfer providers must report the tax on Form 720, the Quarterly Federal Excise Tax Return, and make semimonthly deposits. The first deposits were due January 29, 2026. The IRS has provided limited penalty relief for providers during the first three quarters of 2026 to allow systems to catch up.

What This Does Not Do

A few things I want to be clear about, because I have already heard confusion on these points:

This is not a tax on wire transfers from your bank. If you send an international wire from your Chase, Bank of America, or credit union account, you are not subject to this tax. The exemption for regulated financial institution accounts is clear.

This is not a tax on receiving money. The tax applies only to outbound transfers from the United States. If someone sends you money from abroad, there is no excise tax on the receiving end.

This does not replace or interact with income tax reporting. The remittance transfer tax is a separate excise tax under Chapter 36 of the Code. It has nothing to do with your income tax return, your FBAR, or any international information return. Sending money abroad was never a taxable event for income tax purposes (unless it involved a gift above the annual exclusion), and that has not changed.

This does not apply to business-to-business wire transfers through banks. Companies paying foreign contractors or suppliers through their business bank accounts are not affected, provided the funds originate from a qualifying financial institution account.

Earlier Versions Were Worse

It is worth noting that earlier legislative drafts of the OBBBA included a version of this tax that applied to all outbound remittance transfers — including those from bank accounts — unless the sender was a verified U.S. citizen or national. That version would have been far more sweeping and would have effectively taxed every noncitizen sending money home.

The enacted version is narrower. It targets the payment method (cash and physical instruments), not the sender's immigration status. That is an important distinction, and it means the tax is avoidable for virtually anyone with access to the U.S. banking system.

One More Thing: State-Level Remittance Taxes

Several states have explored or proposed their own remittance taxes over the years, independent of the federal excise tax. If you operate a remittance business or send large volumes of money abroad, be aware that state-level obligations may layer on top of the new federal tax. I am tracking this for clients and will write more if any state provisions take effect.

What You Should Do Now

If you or your family send money abroad regularly, take these steps:

Review how you fund your transfers. If you are using cash, money orders, or cashier's checks at a remittance counter, you are paying the 1% tax right now. Every transfer since January 1, 2026.

Switch to a bank-funded or card-funded method. Open a U.S. bank account if you do not have one. Link it to your preferred transfer service. Use your debit card. The tax disappears.

Talk to your remittance provider. Ask how they are collecting the tax and whether your current transfer method is exempt. Some providers are applying the tax broadly during the transition period and may need to be shown that your transfer qualifies for an exemption.

If you operate a remittance business or money transfer service, the compliance obligations are significant. You are required to collect the tax, make semimonthly deposits, and file Form 720 quarterly. The penalty relief for the first three quarters of 2026 gives you runway, but your systems need to be in place now.

The Bottom Line

The 1% remittance transfer tax is real, it is being collected, and the IRS just issued detailed proposed regulations on how it works. But for the vast majority of people sending money abroad, it is avoidable. The fix is simple: stop using cash. Use your bank account or your debit card.

If you are unsure whether your current transfer method triggers the tax, or if you have questions about how this interacts with your broader international tax obligations, I am happy to walk through it with you.

Tajma Qorri is the founder of Qorri Tax Service, specializing in federal and international tax compliance for individuals and businesses. She can be reached at tajma@qorritax.com or (224) 331-1717.