Understanding remittance tax: Rules, exemptions, and planning strategies
A new remittance tax is set to change the way many people handle cross-border payments. From family support abroad to everyday money transfer services, the rules will touch millions. This guide walks you through what it means, why it matters, and how to plan ahead.
This article is brought to you by Taxes for Expats – we help Americans abroad navigate changing tax rules with clarity and confidence. Whether you are preparing your income tax return or deciding how to structure overseas transfers, our team ensures you stay compliant while minimizing stress.
Definition & purpose of remittance tax
The remittance tax is a new federal excise under IRC 4475 that adds 1% to covered transfers, effective for transfers made after December 31, 2025. It applies only when the sender funds the transfer with cash, a money order, a cashier’s check, or a similar instrument, and it excludes account-funded and US-issued debit or credit card transfers.
Key terms mirror Regulation E – an electronic transfer by a consumer in a State to a recipient in a foreign country via a remittance transfer provider, because it’s an excise collected at checkout by providers, it generally won’t appear as a line on your income tax return.
To place this in context, here’s how it compares with other levies you might see on an international money transfer.
| Tax type | What it taxes | How it works / key difference |
|---|---|---|
| Remittance excise | The transfer amount on certain cash-funded outbound consumer remittances | 1% collected by the remittance transfer provider at the point of transfer; non-cash rails are excluded; effective 2026 |
| Income tax | Net income over a tax year | Paid annually on filing; applies to worldwide income and unrelated to a single transfer |
| Withholding tax | Certain cross-border income (e.g., interest, dividends) | Withheld at source by the payor under statute/treaty – does not apply to consumer remittances |
These distinctions show that the remittance tax is structured as a point-of-sale surcharge, unlike income or withholding taxes that apply later or at source. Because it depends on how funds are provided and transmitted, the design has raised controversial debates about fairness and impact concerning:
- Cash-only scope means the unbanked bear the charge, while bank- and card-funded senders avoid it.
- Researchers warn that even a 1% add-on can push flows from formal to informal channels and hit low-income recipients hardest.
- Providers must build new collection and reporting systems – adding cost and friction at the counter.
- The House debated higher rates (3.5%) before enacting 1%, fueling equity and intent concerns.
Which countries still apply remittance-based taxation?
Tax rules hinge on where you’re tax-resident – not your passport. Some systems charge a remittance tax only when funds are brought into the country, while others tax on worldwide income from day one. Rules vary by jurisdiction – and several changed in 2025. Here are the headline positions expats ask about most.
- United Kingdom: From 6 April 2025, the remittance basis is abolished and replaced by a 4-year foreign income and gains (FIG) regime for new residents after 10 consecutive non-resident years. A Temporary Repatriation Facility allows remitting pre-6 April 2025 FIG at a reduced 12% rate in 2025–26 and 2026–27.
- Ireland: If you’re resident but non-domiciled, foreign income and certain gains are taxed only to the extent remitted to Ireland (with specific exceptions). Revenue’s 2025 manual details scope, employment income carve-outs, and mixed-fund rules.
- India: India doesn’t use a remittance basis; instead, it collects TCS on outward remittance under RBI’s LRS. From 1 April 2025, the annual threshold rises to 10 lakh; above that, most non-education/medical remittances face 20% TCS, while education/medical remittances above 10 lakh are 5% – collected by banks at the moment of money transfer.
- Malta: Non-domiciled residents are taxed on a remittance basis; income left abroad is generally outside scope, and foreign capital gains are typically not taxed even if remitted under certain programs. A minimum annual tax of €5,000 commonly applies where non-remitted foreign income is €35,000+, and program-based regimes (e.g., GRP) charge 15% on remitted income with their own minimums.
NOTE! Always confirm your resident status first – it drives how these rules hit you and whether planning windows or exemptions apply.
How the remittance tax works in practice
Congress enacted a 1% excise on certain outbound, cash-funded remittance transfers – providers must collect it at the counter or in-app. Below, you’ll see how this interacts with foreign-income rules, what to know when bringing funds into the US, and the thresholds that drive planning.
Foreign income and gains – what’s taxed
US citizens and residents owe federal income tax on worldwide income. Qualifying filers can use the foreign earned income exclusion; the 2025 limit is $130,000 per taxpayer via Form 2555. The foreign tax credit may offset tax on wages, interest, dividends, and capital gains that are taxed abroad. Keep records that tie foreign income, taxes paid, and sourcing to your return.
Bringing money into the US – practical rules
Receiving funds into the country isn’t hit by the new remittance tax. Some movements do trigger reporting, especially when a money transfer involves cash.
- Cash or monetary instruments over $10,000 physically entering or leaving the US must be reported on FinCEN Form 105 (CMIR).
- There’s no legal cap on how much you carry, but failure to file CMIR can lead to seizure and penalties.
- Bank wires and ACH transfers aren’t CMIR-reportable because they don’t involve the physical transport of cash.
- Inbound transfers aren’t subject to section 4475; the remittance tax targets outbound transfers from a consumer in a State to a foreign recipient.
Key thresholds and conditions – at a glance
A few numbers determine whether the new excise or other rules apply. Keep these in view when planning cross-border payments.
- Rate – 1% of the amount of a covered remittance transfer; effective for transfers after Dec 31, 2025.
- Funding – tax applies only when the sender pays with cash, money order, cashier’s check, or similar instrument.
- Exclusions – no tax when funded from a US bank or credit union account subject to BSA rules, or with a US-issued debit/credit card.
- Collection – providers must collect at the time of transfer and are secondarily liable if unpaid.
- Gift reporting – annual exclusion is $19,000 per recipient for 2025; larger gifts can require Form 709.
- FBAR – file if foreign accounts exceed $10,000 in aggregate at any time.
- FATCA/Form 8938 – for expats, thresholds start at $200,000/$300,000 (single abroad, end-of-year/any time).
- CMIR – report physical cash over $10,000 at the border.
Reliefs & deductions for overseas remits
When moving funds abroad, not every remittance tax rule applies the same way. Some channels escape the charge altogether, while others leave no room for deductions. This section shows where exceptions exist and how money transfer rules interact with existing reporting obligations.
- The tax is cash-only: it applies when the sender funds the transfer with cash, a money order, a cashier’s check, or a similar physical instrument (IRC 4475(c), Pub. L. 119–21).
- Explicit exclusions: no tax when funds come from an account at a BSA-regulated financial institution (31 U.S.C. 5312(a)(2)(A)–(H)) or when funded with a US-issued debit or credit card (IRC 4475(d)).
- Collection at source: the provider must collect the 1% at the point of money transfer; if it isn’t collected, then the provider is secondarily liable (IRC 4475(b)).
- Coverage boundary: the tax piggybacks on the Regulation E definition consumer in a US State sending to a recipient abroad so many business wires and transfers initiated outside the US fall out of scope (12 CFR 1005.30; EFTA 919(g)).
- Rate and start date: 1% of the transfer amount, for transfers made after 31 December 2025 (IRC 4475(a), effective-date note).
- No personal write-off: federal excise taxes are not deductible on an individual Schedule A, and the law provides no credit or deduction for payers of this excise (IRS Schedule A instructions; IRC 4475 contains no credit provision).
OBBBA’s 1% remittance levy – key impacts
Enacted on July 4, 2025, the One Big Beautiful Bill Act added IRC 4475, a targeted excise on certain outbound transfers. Here’s how the rule reshapes costs, channels, and compliance for cross-border senders.
The law imposes a 1% charge on covered transfers beginning January 1, 2026, collected by remittance transfer providers from the sender. This remittance tax adds $10 to a $1,000 storefront cash send, nudging users toward regulated account rails. Corridors reliant on cash-based international money transfer are likely to see the strongest price effects, especially where households depend on remittances.
Expert help with the remittance tax
Navigating the new 1% levy on overseas transfers can feel daunting – especially with rules that shift depending on how you fund a payment. From understanding exemptions to ensuring your income tax return aligns with US reporting rules, the details really matter.
That’s why our specialists at Taxes for Expats provide year-round guidance – so you can meet every tax compliance requirement with confidence.
