Remittance Tax Arrival Raises Questions And Action Plans

Western Union logo is seen in a store in Florida Keys, United States on May 7, 2024. (Photo by Jakub Porzycki/NurPhoto via Getty Images)

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Since January 1, remittance transfer providers have been required to collect a new tax on transfers of money from U.S. senders to foreign recipients. The tax equals 1 percent of the outbound transfer. Whether the tax applies to some digital transfers is unclear, as are the mechanics for collecting, calculating, and remitting the tax. But the effective date has arrived, and taxpayers are making the best of an opaque situation.

The tax has received a mixed reaction. Supporters say it will increase revenue by about $10 billion over 10 years, discourage illegal immigration, improve money tracking, and make it harder for illicit funds to leave the country. Critics predict double taxation, more red tape for taxpayers and financial institutions, and increases in illicit money transfers, all rendering the United States unattractive for work, investment, and tourism.

What is not in dispute is a need for guidance on open questions surrounding the application and collection of the tax. Remittance provider advisers like law firms and trade associations have identified gaps that need to be addressed by Treasury and the IRS and have advised providers on how to proceed in the meantime. In turn, remittance providers have been advising customers on how to structure their remittances to avoid the tax.

The Origin Story

The tax as originally proposed in May 2025 exempted U.S. citizens and nationals that sent remittances abroad, introduced the concept of a qualified remittance transfer provider (QRTP), and provided a credit against the tax. The tax as ultimately enacted in the One Big Beautiful Bill Act (P.L. 119-21) removed the exemption for U.S. citizen and national senders, the QRTP concept, and the tax credit. It did not, however, address questions about digital remittances and the obstacles to collecting the tax.

As originally proposed in section 112105 of H.R. 1 (May 22, 2025), new section 4475 imposed a 3.5 percent tax on remittance transfers. The provider collected the tax from the sender and remitted it quarterly to the secretary. The transfer provider had secondary liability for any tax not paid.

As noted, unlike the enacted version, section 4475(c) had an exception for remittance transfers sent by U.S. citizens and nationals through QRTPs. To be a QRTP, a provider had to agree with the secretary in writing to verify that senders were U.S. citizens or nationals.

The proposed tax was accompanied by new section 36C, which provided a credit for the excise tax on remittance transfers of U.S. citizens and nationals. To claim the credit, taxpayers had to include their Social Security numbers on their tax returns and demonstrate that they paid the tax and provided the certification and information in new section 6050AA, which required remittance transfer providers to file a return.

Proposed section 4474 provided some guidance on reporting obligations. QRTPs had to disclose the aggregate number and value of transfers to which section 4475 did not apply. Non-QRTPs with a sender that intended to claim the credit had to disclose the name, address, and Social Security number of the sender; the amount of tax paid; and the amount of tax remitted. As for any remittance transfer not conducted by a QRTP for a sender not claiming a credit, the provider had to disclose the aggregate amount of tax paid and remitted. That last point has been cited in favor of aggregate-level reporting under enacted section 4475, which doesn’t provide this level of instruction.

The legislation was criticized from several viewpoints. (Prior analysis: Tax Notes Int’l, June 30, 2025, p. 2183; Tax Notes Int’l, June 13, 2025, p. 1727; Tax Notes Int’l, June 23, 2025, p. 2172.) A list of the most frequent complaints appears in a May 28, 2025, letter written by an industry group of financial technology companies to the Senate Finance Committee. The tax:

• raises privacy concerns for U.S. citizens trying to avoid the tax or claim a credit;
• places an undue and excessive tax burden on U.S. citizens and other taxpayers lawfully present in the United States like H-1B visa and green card holders;
• drives consumers toward unregulated, underground channels to avoid the added cost, which poses a direct risk to national security and financial integrity;
• increases compliance burdens and expenses on providers and government agencies;
• creates conflicting regulatory definitions and standards and disrupts efforts to harmonize regulation of money transmitters across states; and
• threatens small businesses, because remittance transfer service providers often operate through agent relationships with local retailers like grocery stores, pharmacies, check-cashing locations, and mom-and-pop businesses.

The group did not include another common criticism of the proposed tax, which is that it violates nondiscrimination articles in U.S. tax treaties because a U.S. citizen or national could avoid it by using a QRTP or claiming a credit. According to some critics, the tax also violated friendship, commerce, and navigation treaties.

The tax as enacted partly addressed the first flaw. The need for a provider to distinguish between U.S. citizens or nationals and everyone else was eliminated, which addressed the privacy and identity theft concerns of U.S. persons. However, these taxpayers lost their exemption and tax credit.

The Enacted Tax

Perhaps in response to some of the above concerns, in addition to lowering the tax rate, the OBBBA eliminated the exemption for U.S. citizens and nationals, discarded the QRTP concept, and removed the credit in section 36C and the reporting requirements in section 6050AA (which now governs returns for receipt of passenger vehicle loan interest). The enacted version of section 4475 also limited the types of transfers subject to tax.

Section 70604 of the OBBBA imposes a 1 percent tax on remittance transfers. Again, the tax is paid by the sender and collected by the remittance transfer provider, who has secondary liability for the tax. However, the tax applies only to remittance transfers for which the sender provides cash, a money order, a cashier’s check, or other “similar physical instrument” to the provider.

Also, the tax won’t apply to any remittance transfer if the transferred funds are withdrawn from an account held in a financial institution or funded with a debit or credit card issued in the United States.

A financial institution is defined broadly to include insured banks, commercial banks or trust companies, private bankers, agencies or branches of a foreign bank in the United States, credit unions, thrift institutions, registered brokers or dealers, and brokers or dealers in securities or commodities. To qualify, a financial institution must be subject to Bank Secrecy Act reporting requirements (see 31 U.S.C. sections 5311-5336).

Like the previous version, remittance transfers conducted through multiple party arrangements involving the sender are treated as financing transactions under section 7701(l). The practical effect of this is to ignore any intermediaries and treat the transaction as conducted directly between the sender and the recipient.

These changes did not address the collection and enforcement issues, and questions remained about the application of the tax to digital transfers. An IRS notice provided penalty relief, relaxed a safe harbor, and clarified reporting obligations. But the tax still loomed.

Guidance in Relief Measures

Seven days after the IRS’s 2026 guidance plan prioritized section 4475, the IRS released Notice 2025-55, 2025-43 IRB 625. While the tax was still in force on January 1, the notice provides relief from penalties for failure to deposit it for the first, second, and third calendar quarters of 2026. The notice directs taxpayers to reg. section 40.6302(c)-1(a)(1), which requires those who file Form 720 to deposit tax semimonthly on the 29th and the 14th of the month. The deposits should equal at least 95 percent of the net tax liability unless a safe harbor applies. Section 6656(a) imposes a penalty for failure to make timely deposits unless the person can show that the failure was because of reasonable cause and not willful neglect.

The notice relaxes the safe harbor in reg. section 40.6302(c)-1(b)(2), which treats any person that files Form 720 (“Quarterly Federal Excise Return”) for a lookback quarter as having met the deposit requirement for the current quarter if:

• the deposit in the current quarter is not less than one-sixth of the net tax liability reported for the lookback quarter;
• each deposit is made on time;
• any underpayment is paid by the due date of Form 720; and
• the person’s liability does not include any tax not imposed during the lookback quarter.

If a person fails to make required deposits, the IRS may withdraw the right to use the safe harbor.

These safe harbor provisions seem to have at least partly driven the relief structure in the notice. Because the remittance tax was effective beginning January 1, the first deposit is normally due by January 29. Because the safe harbor requires a lookback quarter to determine deposit amounts in the current quarter, a provider will be unable to use the safe harbor to calculate semimonthly deposits until the third quarter of 2026. This is because the first quarter is the lookback quarter for the third quarter of 2026. The notice does not penalize taxpayers for incorrectly administering the tax until a lookback quarter is available under the safe harbor.

The stated purpose of the relief is to allow remittance transfer providers to familiarize themselves with the new tax and its reporting and deposit requirements in the interest of sound tax administration. For the first three quarters of 2026, a remittance transfer provider will satisfy the reasonable cause standard if it makes timely deposits of the tax even if computed incorrectly and any underpayment in a quarter is paid in full by the due date of Form 720.

A provider’s ability to use the deposit safe harbor in reg. section 40.6302(c)-1(b)(2) will not be withdrawn for a failure during the first three quarters of 2026 to make deposits of the tax if the provider satisfies certain requirements.

The notice effectively alerts remittance transfer providers that their excise tax reporting will appear on Form 720. In November the IRS advised that Form 720 will be modified to add a new line for the remittance transfer tax.

The notice resolved some of the concerns about deposit and reporting requirements. However, that has not ended the ongoing debates about the scope of the transaction exemptions, enforcement challenges, and treaty application. Providers and their advisers have identified needs for clarity regarding treatment of wallet transfers, preloaded cards, mobile app payments, cancelled transactions, error remediation, and, again, double taxation.

Still Waiting

In November 2025 the Money Services Business Association, which signed the Senate letter in May, asked Treasury to outright postpone the January 1 effective date of the tax to at least June 1. The group asserted that businesses need more time to develop the infrastructure needed to collect and remit the tax — specifically systems changes, testing, and training. “Forcing compliance on January 1, 2026, will create a high risk of customer disruption and place great strain on systems and personnel,” the association says.

Reporting Issues

The business association expressed appreciation for the relief in Notice 2025-55 but notes that it appears to require collected tax amounts to be remitted semimonthly on the 29th and 14th. Section 4475, however, requires remittance transfer providers to remit the tax quarterly.

The group also requests confirmation that the taxable event is the disbursement of the remittance to the recipient, not initiation of the remittance transfer. This aligns tax liability with the disbursement event and ensures that canceled or expired transactions are not taxed. It seeks guidance on remitting the collected tax to the IRS and confirmation that aggregate-level (not per-transaction) reporting accompany the quarterly tax payment.

Guidance is also needed on how to calculate the tax amount when the remittance transfer provider does not separately state a fee for sending the transfer.

Digital Transactions

Statutory distinctions require interpretation, and section 4475 includes a lot of them. As noted, section 4475 does not tax any remittance that:

• is withdrawn from an account held by a financial institution;
• is funded by a U.S.-issued debit or credit card; and
• does not involve cash, money order, cashier’s check, or other physical instrument given by the sender to the provider.

The third item raises questions on whether transactions that involve preloaded debit cards, wallets, and mobile apps qualify for the exemption.

The uncertainty on whether reloadable debit cards are subject to the tax prompted the Money Services Business Association to ask Treasury to confirm the exclusion of reloadable prepaid debit card transactions from tax. According to the group, given the similarity between reloadable prepaid cards and debit cards, Congress intended to include prepaid cards in the exception for debit and credit cards. Because reloadable prepaid cards are a form of debit card and are not captured by the general use prepaid card exemption, transactions funded by such cards are not taxable.

The emphasis on physical funds also raises questions about application of the tax to some digital payments. While money orders made via companies like Western Union are likely subject to the tax, it is unclear if it’s the same for funds sent via a mobile application.

Also, while companies like Western Union are subject to the Bank Secrecy Act, they typically do not hold funds that can be withdrawn, possibly making transfers through these companies subject to the excise tax. While section 4475 excludes any transfers funded by a debit or credit card issued in the United States from the tax, prepaid card reloads and transfers made from those cards may be taxable remittances. The act of reloading a prepaid card with cash in the United States for a transfer abroad may be considered a taxable event, depending on the specific provider and interpretation of the rules. However, using the loaded card itself to initiate a transfer may be exempt because the transaction is processed electronically.

Errors

Critics have noted that section 4475 does not provide any way for an individual to recover the tax if it is erroneously withheld. Risk-averse remittance transfer providers may withhold the tax in error because of their secondary liability. There is also no individual reporting through information returns on the amounts and senders for which withholding took place. Providers need guidance and a process for recovering erroneously withheld amounts from the provider or the IRS.

Double Taxation and Treaties

While removal of the exemption for U.S. persons weakened the antidiscrimination argument, double taxation is still a problem. Taxing the act of sending money arguably taxes it twice, because the income has already been taxed where it was earned. Aside from nondiscrimination, the tax still raises treaty violation questions related to assignment of taxing rights, residency rules, and relief measures like credits and exemptions.

While providers continue to suggest guidance on how the tax applies to digital wallets, prepaid card reloads, and online apps, Western Union is reaching out to customers on these matters.

Time to Act

January 1 has come and gone. Remittance transfer providers have to make some decisions about what transfers to consider taxable, how to survive internal audit, and how to educate their customers.

The Front Lines

Front-line providers like Western Union tend to interpret the tax exemptions broadly. Western Union’s advice to customers is that the tax does not apply to preloaded cards and transfers through their app. The tax applies only when customers pay for their transfers with cash, money orders, or cashier’s checks. According to their website, customers who pay with any of the following will not be charged the new tax:

• debit or credit cards;
• bank accounts;
• digital wallets, including Google Pay™, Apple Pay®, and Vigo Money; and
• prepaid cards, including the Western Union Prepaid Visa® Card.

Customers can avail themselves of “easy alternatives” for sending tax-free transfers, like paying with debit cards at retail locations, using Western Union Prepaid Visa Cards loaded with cash, and making transfers on WesternUnion.com or through the related app.

Government Action

Mexican President Claudia Sheinbaum is simply advising Mexican nationals living in the United States to get a bank card called Finabien that is backed by the Mexican government. People can use the card to send money to Mexico and avoid the tax. Mexican nationals can use the card to send up to $2,500 dollars daily as long as remittances don’t exceed $10,000 in one month. There is a $2.50 transaction fee regardless of the amount sent. People may be given two cards, one for use in the United States and another to send to a person in Mexico, with both cards linked to the same account.

The card works like a debit card, where people load money onto it using the Visa network, and the recipients use the card to make purchases in Mexico. It is not a bank account but a reloadable debit card that does not earn interest. Those who wish to obtain one of the cards must visit a Mexican consulate in person. Getting the card will require an identification document, like an Instituto Nacional Electoral voter ID, consular ID, or passport, plus an email address.

Financial Institutions

Trade associations and vendors that work with financial institutions that are transfer providers are also interpreting the exemptions and reporting requirements to advise their clients. America’s Credit Unions weighs in on application of the tax to remittances by credit union members, noting that their compliance team has seen confusion among members as to what types of payment or transfers are subject to the tax.

The association advises members that section 4475(d) exempts transfers made with withdrawn funds from accounts at financial institutions like credit unions that are subject to the Bank Secrecy Act. If senders are using funds from their accounts at the credit union, the tax does not apply. However, if they are bringing in cash or another means of payment or are not members or account holders at the credit union, the tax may still apply.

According to the association, “Section 4475(c) is where the shape of the tax starts to form,” which triggers three questions credit unions should ask to determine if the tax applies:

• Is it a remittance transfer?
• Is the transfer excluded under subparagraph (d) (because it involves a credit or debit card or financial institution)?
• Did the sender provide cash, money orders, cashier’s checks, or similar instruments?

Most of the information then focuses on the definition of a remittance transfer in section 4475, which is defined by cross-reference to section 919(g) of the Electronic Funds Transfer Act (P.L. 95-630). A remittance transfer is an electronic transfer of funds made by a remittance transfer provider to a person located in a foreign country. Under the transfer act, if a transfer is to a U.S. military base in a foreign country, the funds are still considered to be received in the United States and the transfer is not considered a remittance transfer. The transfer act also excludes transfers of $15 or less from the definition of remittance transfer.

For examples of remittance transfers, the association directs credit unions to the commentary to Regulation E, the implementing reg for the transfer act, which provides examples of what are and are not considered remittance transfers. The commentary specifically includes consumer wire transfers as an example of a remittance transfer. This would mean that international wire transfers would be subject to the excise tax but that domestic wire transfers and international transfers of $15 or less would be excluded.

Remittance transfers include:

• transfers in which the sender provides cash or another method of payment to a money transmitter or financial institution and requests that funds be sent to a specified location or account in a foreign country;
• consumer wire transfers, in which a financial institution executes a payment order upon a sender’s request to wire money from the sender’s account to a designated recipient;
• an addition of funds to a prepaid card by a participant in a prepaid card program, such as a prepaid card issuer or its agent, that is directly engaged with the sender to add these funds, if the prepaid card is sent or was previously sent by a participant in the prepaid card program to a person in a foreign country, even if a person located in the United States (including a sender) retains the ability to withdraw the funds;
• international automatic clearing house transactions sent by the sender’s financial institution at the sender’s request; and
• online bill payments and other electronic transfers that a sender schedules in advance, including preauthorized remittance transfers, made by the sender’s financial institution at the sender’s request to a designated recipient.

While a remittance transfer is not always taxable, a transaction’s status as a remittance transfer to a foreign person may set a minimum requirement for baseline internal control documentation.

A Roadmap

Conducting nontaxable remittance transfers to foreign persons may have wider implications for provider disclosures. Payment processing service IntelliPay has drafted a “county treasurer’s guide” that describes itself as addressing the intersection of remittance transfer regulations and tax payment processing for local government offices. Apparently, county treasurers are asking if they need to withhold 1 percent on international payments. The answer is a roadmap for administering the tax.

The guide clarifies when tax payments qualify for exemptions from remittance transfer disclosures and helps county offices ensure compliance. “Understanding these exemptions is critical for county treasurers who accept international payments or work with third-party payment processors,” the guide says.

The guide takes the position that a tax exception does not apply to remittance transfers if the funds being transferred are withdrawn from accounts held by money services businesses, despite the fact that they are subject to the Bank Secrecy Act. Money services businesses like Western Union and MoneyGram don’t qualify even though they’re regulated by the act.

As for preloaded debit cards, the guide asserts that some prepaid card reloads and transfers made from them are taxable remittances. A U.S.-issued prepaid card used for direct purchase is assumed to be exempt, while a reloaded prepaid card sent to someone abroad is taxable. Potentially taxable transactions include a digital wallet funded by cash or money order and then used for an international transfer or a county-loaded prepaid card for an employee that is reloaded into an international person’s digital wallet. If a digital wallet is used for county business, the guide advises that it link exclusively to county bank accounts or U.S.-issued cards.

The guide labels cryptocurrency payments to international vendors as a gray area with no clear IRS guidance. It recommends avoiding these transactions because the IRS hasn’t clarified whether crypto transfers are remittance transfers under the statute and because these transactions would be harder to reverse or verify than traditional payments.

The guide recommends that counties maintain compliance files so that external auditors can verify they aren’t subject to remittance tax obligations. The recommended files should contain a log of payments to foreign recipients and a certification that taxable remittances (like cash payments) are prohibited. Guidance is provided on configuring accounts payable systems to maintain exempt status, internal controls, audit considerations, testing, and employee training strategies. A post-2026 task list calls for quarterly reviews of international payments, watching regulatory updates, updating training materials when regs change, and maintaining annual compliance documentation for auditors.

Expectations

More general advice for providers mimics Intellipay’s county treasurer’s guide but identifies a broader array of affected industries that includes financial institutions and the financial services industry in general, banks, fintech platforms, specialty finance providers, and other money transfer services. Businesses are advised to comply by identifying, tracking, and reporting taxable remittance activity.

These businesses should prepare for increased scrutiny of remittance flows and potential audits focused on compliance with the new tax. This may require quarterly remittance schedules, enhanced due diligence procedures, and integration of tax reporting requirements into transaction processing systems. On a basic level, providers should flag reportable transfers, code them as exempt, and document the reason for exclusion.

To minimize exposure and liability for the tax, companies should consider implementing controls that disallow transfers without collection of the tax or use of cash or other physical instruments.

More to Come

Congress is still tinkering with the tax. Introduced in September 2025, the Requiring Excise for Migrant Income Transfers Act (H.R. 5595) would impose a 15 percent tax on remittance transfers. The excise act preserves the OBBBA’s limits on taxable remittances to those involving physical instruments, but it restores the exemption for verified U.S. citizens and nationals, the QRTP concept, the section 36C tax credit, and reporting requirements in new section 6050BB. The bill resurrects the privacy and treaty criticisms in section 112105 of 2025’s H.R. 1, continues the operational and reporting ambiguities in current section 4475, and raises the stakes with a 150 percent tax increase.