How Much Will the 1% Remittance Tax Cost You?
The OBBBA added a 1% excise tax on certain international money transfers. Calculate the cost — and learn which transfer methods are exempt.
What Is the 1% Remittance Tax?
Effective January 1, 2026, the OBBBA imposed a 1% excise tax on certain international money transfers sent from the United States for personal, family, or household purposes. The tax is collected by the remittance transfer provider (Western Union, MoneyGram, etc.) at the time of the transfer and remitted to the IRS quarterly.
The tax applies specifically to transfers funded by physical instruments: cash, money orders, and cashier's checks. This is the critical detail that most coverage misses.
What Is Exempt (and How to Avoid the Tax)
The following transfer methods are explicitly exempt from the 1% tax:
- Transfers funded from a US bank account (ACH, wire transfer, online banking)
- Transfers using a US-issued debit or credit card
- Transfers through fintech platforms like Wise, Remitly, or Xoom when funded from a bank account
- Commercial/business transfers (the tax only applies to personal transfers by individuals)
The simplest way to avoid the tax: stop using cash at money transfer counters. Instead, initiate transfers from your bank account through a mobile app or online platform. The transfer itself is not taxed — only the cash funding method triggers the excise tax.
Who Is Affected Most
The tax disproportionately affects individuals who rely on cash-based remittance services, particularly immigrant communities sending money to family in Latin America, South Asia, Southeast Asia, and Sub-Saharan Africa. In 2023, over $23 billion was sent from the US to India alone. The Philippines, Mexico, Guatemala, and El Salvador are other major recipient countries.
For someone sending $500/month in cash via Western Union, the annual tax is $60 — on top of existing service fees of $96-120/year. Switching to a bank-funded transfer through Wise or Remitly eliminates the tax entirely and often reduces the service fee as well.
Compliance and Enforcement
The remittance transfer provider is responsible for collecting the tax. If they fail to collect, they become secondarily liable. The IRS issued Notice 2025-55 providing transitional penalty relief for the first three quarters of 2026 as providers update their systems. The tax is reported on quarterly Form 720 (Excise Tax Return).
The original OBBBA draft proposed a 5% remittance tax, which was negotiated down to 3.5% in the House and finally 1% in the Senate. The narrow scope — only cash-funded transfers — means most digitally-initiated remittances are unaffected.
