The remittance tax is a new federal excise tax that applies to certain outbound money transfers from the United States. Enacted under the One Big Beautiful Bill Act, signed into law on July 4, 2025, the tax will go into effect on January 1, 2026.
This tax on remittances requires senders to pay 1% of the total amount transferred when using cash, money orders, cashier’s checks, or similar physical instruments to send money abroad. The excise tax is collected by remittance transfer providers — such as banks, wire transfer services, and money transfer apps — and submitted quarterly to the U.S. Treasury.
Unlike earlier versions of the tax bill that focused only on non-citizens, the final law applies to everyone, including:
- American citizens
- Green card holders
- Non-citizens residing in or sending from the U.S.
Why did the U.S. government create a remittance tax?
The stated goals of the remittance tax are to:
- Generate federal revenue (projected at $4.5–$10 billion over 10 years)
- Help fund border enforcement
- Deter illegal immigration by raising the cost of sending money abroad
The House of Representatives included this measure in a broader reconciliation bill, aiming to offset spending and reduce deficit risks. However, critics — including the Tax Foundation — argue it’s a burdensome tax that affects everyday Americans and won’t meaningfully curb illegal immigration.
How much will the remittance tax cost?
The excise tax is 1% of the transfer amount — for example:
- Sending $500 abroad → You’ll pay a $5 tax
- Sending $1,000 abroad → You’ll pay a $10 tax
There’s no minimum threshold. Whether you’re transferring funds for family emergencies or routine support, this remittance tax applies as long as you’re using cash-based methods.
Who has to pay the remittance tax?
The remittance tax applies to any individual who uses physical instruments (like cash, money orders, or cashier’s checks) to send money abroad, including:
- American citizens sending money to family members in their home countries
- Green card holders supporting relatives overseas
- Non-citizens living and working legally in the U.S.
The intended tax base is broad — affecting both high-volume and small-amount cross border payments.
What kinds of money transfers are affected?
The tax applies to:
- Remittance transfers using cash, money orders, cashier’s checks, and similar instruments
It does NOT apply to:
- Wire transfers funded by U.S.-issued debit or credit cards
- ACH bank transfers between U.S. bank accounts
That means you can avoid paying the remittance tax by using your bank account or ACH instead of cash. This is the easiest way to legally reduce exposure to this burdensome tax.
Can I claim a tax credit if I was wrongly charged?
Yes — under the law, American citizens who are charged the remittance tax through a qualified remittance transfer provider may be eligible to claim a refundable tax credit when filing their annual income tax return.
Also, if the excise tax is erroneously collected, the taxpayer may have options for recouping erroneously collected tax — though final IRS guidance is still pending.
It’s critical to:
- Keep detailed records of your transactions
- Use financial institutions that comply with IRS verification rules
- Monitor updates on reporting hurdles and procedures for recouping erroneously collected tax
What’s the global impact of the remittance tax?
The new remittance tax could hit developing nations hard. Countries like Mexico, India, and El Salvador rely heavily on remittances from U.S.-based citizens. For example:
- Mexico may lose over $1.5 billion annually
- El Salvador could see a 0.6% drop in GNI
That means families abroad could lose critical income, affecting everything from healthcare to education. Reduced foreign investment and strained diplomatic ties are also likely.
How will financial institutions respond?
Financial institutions such as banks, money transfer services, and digital wallets must now:
- Impose extra ID verification
- Comply with new reporting requirements
- Handle complex back-end operations for collecting and remitting the tax
This will likely lead to higher service fees, reduced service options, or slower processing times for remittance transfers.
How can U.S. expats avoid paying the remittance tax?
If you’re a U.S. expat or plan on sending money abroad, here’s how you can limit your exposure:
- Use ACH bank transfers or fund transfers with U.S.-issued credit/debit cards
- Avoid cash-based transfers like Western Union kiosks, money orders, and cashier’s checks
- Choose a qualified remittance transfer provider
- Track transactions for tax credit or reconciliation if needed
What should everyday Americans know
The remittance tax is here, and it affects a wide range of citizens, non-citizens, and green card holders. If you plan on sending money abroad, your method of transfer could mean the difference between paying a federal excise tax or avoiding it altogether.
Whether you’re supporting family members, managing foreign accounts, or funding large sums for cross border payments, it’s essential to understand this new tax policy and act accordingly.
To stay compliant and protect your money, use bank-based transfers, avoid cash, and stay informed as the IRS finalizes guidance.
