By Ryan J. McDonell, CPA, MSA, MSLT,
Tax Director
The One Big Beautiful Bill Act (OBBBA) introduces a new 1% excise tax under IRS Code Section 4475 on certain international money transfers, which will take effect for transfers made after December 31, 2025. This new provision will impact both individuals who send money abroad and businesses facilitating these transactions.
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The tax applies to “remittance transfers,” generally defined as electronic fund transfers requested by a consumer in the United States to a recipient in a foreign country for personal, family, or household purposes. The scope of the tax is narrowly focused – the 1% tax is only imposed on transfers where the sender provides cash, a money order, a cashier’s check, or a similar physical instrument to the transfer provider.
There are significant exceptions to this tax – it does not apply to transfers funded by:
• Withdrawing from an account held at a financial institution, such as a bank or credit union subject to Bank Secrecy Act requirements, or
• Using a debit or credit card issued in the United States
Therefore, most common electronic transfers made from a bank account or with a card are exempt from the new tax. Impacted parties should be aware, however, that anti-avoidance rules may apply to recharacterize transactions and prevent attempts to circumvent the new 1% excise tax.
The law places the collection and remittance burden on the “remittance transfer provider,” a term that includes businesses like money transmitters, foreign exchange service providers, and certain retailers or convenience stores that offer money transfer services. These providers must:
1. Collect the 1% tax from the sender, and
2. Remit the tax to the IRS on quarterly federal excise tax returns
A provider that fails to collect the tax at the time of the transfer becomes secondarily liable for the payment, making compliance critical.
Tax Penalty Relief Available
The IRS recently issued Notice 2025-55 to provide temporary transitional penalty relief. For the first three quarters of 2026, providers who make timely deposits – even if the amounts are calculated incorrectly – and pay any underpayment by the quarterly Form 720 due date will be deemed to have met the reasonable cause standard and can avoid failure-to-deposit penalties.
In summary, a new 1% excise tax on certain international remittance transfers takes effect in 2026. This tax will primarily affect cash-based transactions, while most transfers funded from U.S. bank accounts or with U.S.-issued debit or credit cards remain exempt. Remittance transfer providers should prepare for new compliance obligations and take advantage of IRS penalty relief as they adapt to these changes.
Refer to the IRS Notices or contact us at GT Reilly about other provisions and tax strategies for businesses related to the OBBBA.
