The Tax Times: New 1% IRS Tax on Remittance Transfers: What Senders and Providers Need to Know

On April 13, 2026, the IRS and Treasury released proposed regulations under new Internal Revenue Code section 4475, explaining how a new 1% federal excise tax will apply to many cash transfers from the United States to recipients in foreign countries. Although these rules are still proposed, the underlying tax is scheduled to take effect for transfers made after December 31, 2025.

The basics: what is the new remittance tax?

Section 4475 was enacted as part of the “One Big Beautiful Bill Act” and imposes a 1% excise tax on certain remittance transfers from the U.S. to foreign countries. In plain English, this is an extra 1% federal tax that can apply when you send money abroad through a money transfer business or similar service.

Key points:

· The tax is 1% of the amount of the taxable remittance transfer.

· It applies to transfers made after December 31, 2025.

· The sender is legally liable for the tax, but the remittance transfer provider must generally collect it at the time of the transfer.

When does the tax apply?

The proposed regulations make clear that not every international transfer is taxed.

The 1% tax generally applies when:

· The money is sent from the United States to a recipient in a foreign country.

· The sender pays the provider using cash, a money order, a cashier’s check, or a similar physical instrument.

The tax does not generally apply to:

· Transfers funded directly from a bank account (for example, an ACH or wire from your U.S. checking account).

· Transfers funded by U.S. debit or credit cards, as described in many current summaries of section 4475.

· Certain transfers from accounts at institutions subject to the Bank Secrecy Act, such as some credit union account withdrawals, which benefit from a specific statutory exemption.

For many families that still rely on cash or money orders to send support abroad, this distinction will matter a great deal: cash at a storefront remittance business may be taxed, while an online transfer funded directly from a U.S. bank account may not.

Who has to collect and pay?

Under the statute and the proposed regulations, the sender owes the tax, but the burden of collection falls on the “remittance transfer provider” (RTP).

· Providers (think Western Union, MoneyGram, and similar services) must calculate the 1% tax, collect it from the sender, and remit it to the IRS.

· Providers report the tax on Form 720, Quarterly Federal Excise Tax Return, and make required semimonthly deposits.

· If the provider fails to collect the tax from the sender, the provider becomes secondarily liable and must pay it itself.

The IRS has already signaled some limited failure‑to‑deposit penalty relief for the first three quarters of 2026 to give providers time to build systems and processes.

Timing, comments, and what’s next

The proposed regulations are open for public comment, with written comments and hearing requests due June 12, 2026. Taxpayers and industry groups can weigh in on definitions, anti‑avoidance rules, and operational issues before Treasury finalizes the regulations.

Despite the “proposed” label, the tax itself is in the Code and scheduled to apply to qualifying remittance transfers after December 31, 2025, with the first deposits due January 29, 2026 and first quarterly Form 720 filings covering the first quarter of 2026.

Practical planning tips

For individual senders:

· If you routinely send cash abroad using a storefront remittance service, expect to see a new 1% federal tax line added to qualifying transfers in 2026.

· If possible, consider using bank‑funded or card‑funded transfers that fall outside the cash‑based definition in section 4475, as currently described by IRS guidance and practitioner summaries.

For remittance transfer providers and financial institutions:

· Inventory your cross‑border products and identify which are funded by cash, money orders, cashier’s checks, or similar instruments.

· Build functionality to: (1) flag taxable transfers, (2) calculate and collect the 1% from senders, and (3) integrate the data into your Form 720 and deposit processes.

· Monitor the final regulations and any additional IRS guidance, including potential updates to Form 720 and excise tax deposit rules under 26 CFR part 40.

If you send money abroad or operate in the remittance space, now is the time to understand how these proposed rules work so you are not surprised when the 1% excise tax becomes part of your 2026 reality.

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