By Naveen Athrappully
The Internal Revenue Service and the Department of the Treasury proposed regulations on Friday regarding the new excise tax, established under the One Big Beautiful Bill Act, on certain remittances made abroad.
“Beginning Jan. 1, 2026, a 1 percent remittance transfer tax applies to remittances sent from the United States to recipients in foreign countries when the sender provides cash, a money order, a cashier’s check, or other similar physical instrument to the remittance transfer provider,” the IRS said in an April 10 statement.
“The sender is liable for the tax, and remittance transfer providers are required to collect the remittance transfer tax from certain senders, make semimonthly deposits, and file quarterly returns with the IRS. If the remittance transfer provider does not collect the tax from the sender, the tax becomes a liability of the remittance transfer provider.”
The proposed regulations clarify how the remittance transfer tax would be applied.
According to the notice of the proposed rule, the remittance tax is applicable to all eligible transfers irrespective of whether the amount is actually disbursed to the designated recipient.
In case a remittance transfer expires or is canceled and the remittance transfer provider refunds the amount to the sender, the sender can recoup the tax by filing a claim for refund with the IRS.
The tax does not apply to any remittance transfer in which the funds come from a credit or debit card issued in the United States. It is also inapplicable if the funds being sent are withdrawn from an account held in a financial institution.
Any amount that is ultimately transferred to a designated recipient will be taxed, the notice clarified.
The rules affect remittance transfer providers, such as credit unions, banks, and money services businesses, as well as their agents.
There are roughly 600 money services businesses licensed as money transmitters in the United States, out of which more than 200 operate through around 500,000 authorized agents, the IRS said, citing data from the Nationwide Multistate Licensing System.
Between 2019 and 2024, money transfers to domestic and foreign destinations via money services businesses increased from $1.3 to $4 trillion.
“Money transmitted to foreign destinations (remittance transfers) accounted for 9 to 25 percent of the total money transmissions, equaling $236 billion in 2019, growing to almost $1 trillion in 2021 and 2022, but decreasing to $365 billion in 2024,” the notice said.
“Over 2019–2024, annual remittance transfers to foreign destinations through [money service businesses] averaged $520 billion. The average individual money transfer size ranged from $290 to $740 over the same time period.”
The IRS said in its statement that remittance transfer providers must report the new remittance transfer tax via Form 720.
In an Oct. 7 statement, the IRS said that limited penalty relief will be available for remittance transfer providers who fail to deposit the collected remittance taxes in the first three quarters of this year.
“Treasury and the IRS understand there might be challenges implementing the new law and have determined it is in the interest of sound tax administration to provide limited penalty relief related to remittance transfer tax deposits,” the agency said.
Tax Impacts
In a July 1 report, the Center for Global Development said that even at 1 percent, the remittance tax would hit poor countries “hard.” The new tax not only raises costs by 1 percent but can also lead to a dip in remittances.
Mexico stands to lose the most due to the tax imposition, with the loss being more than $1.5 billion per year, the report said. Other nations majorly affected by the tax include India, China, Vietnam, Guatemala, the Dominican Republic, and El Salvador.
“Central American countries are projected to suffer the greatest loss relative to their gross national income (GNI), with El Salvador—a close ally of the Trump administration—projected to lose the equivalent of 0.6 percent of GNI,” the report said.
“Where the effects of the tax are significant relative to GNI, countries could experience lower household incomes, weaker consumer demand, and increased exchange rate pressures.”
The Federation for American Immigration Reform blamed remittances for causing the United States’ economy to lose at least $200 billion per year, according to a July 22 report.
This amount is more than enough to run the Department of Homeland Security and the State Department combined. It is also four times the amount spent on the Department of Justice.
“Remittances represent a substantial loss to the U.S. economy. The money that is sent out of the United States is money that is not spent on goods and services in the United States,” the report said.
“The loss of money remitted also means no benefits from the sales, excise, and restaurant taxes, etc. attached to those goods and services. Indeed, remittances carry a significant opportunity cost.”
