1% Excise Tax Hits Remittance Transfers Under Proposed REG-114499-25 Rules

(UNITED STATES) — The U.S. Treasury Department and Internal Revenue Service released proposed regulations on April 10, 2026 that target cash-funded remittance transfers under the 1% excise tax created by Internal Revenue Code Section 4475. The proposal, REG-114499-25, focuses on U.S. outbound electronic fund transfers sent to foreign recipients and funded with cash or similar physical instruments.

The tax applies to transfers made after December 31, 2025. It covers remittance transfers funded by cash, money orders, cashier’s checks, traveler’s checks, or similar physical instruments issued by foreign governments. The rules exclude cryptocurrencies, digital assets, U.S. debit cards, U.S. credit cards, bank account transfers, and general-use prepaid cards, unless those cards were bought to avoid the tax. Transfers of $15 or less also fall outside the tax.

Treasury and the IRS tied the proposal to tax avoidance concerns. The proposed rules let the government disregard or recharacterize transactions aimed primarily at escaping the tax, including funding methods built around cash withdrawals, third-party cash provision, or the purchase of physical instruments to mimic exempt digital payments.

Congress enacted the tax through the One Big Beautiful Bill Act, P.L. 119-21, which President Trump signed on July 4, 2025. The levy began on January 1, 2026, and the proposed regulations would apply to quarters after they are finalized. Treasury and the IRS said taxpayers may rely on the proposed rules starting January 1, 2026.

The tax on remittance transfers equals 1% of the total amount the sender provides. That amount includes promotional bonuses tied to the transfer. It does not include service fees or state taxes. The tax attaches when the sender initiates the transfer or pays the remittance transfer provider, not when the money reaches the recipient.

Senders owe the tax, but remittance transfer providers collect it at the point of sale. Providers must report it quarterly on Form 720 and make semi-monthly deposits even though the return is filed every quarter. If a provider fails to collect the tax, that uncollected amount becomes the provider’s liability.

The scope is broad. It covers transfers sent from any U.S. state, territory, the District of Columbia, or Puerto Rico to recipients in foreign countries. Treasury and the IRS did not create exemptions for U.S. citizens or residents, and they did not carry over the Electronic Fund Transfer Act’s 500-transfer safe harbor for low-volume providers.

A simple example in the materials shows how the charge works. A sender who gives $1,000 in cash for a transfer to Mexico owes $10 in excise tax. Add remittance transfer provider fees of about $15, and the total comes to about $1,025.

The anti-avoidance language reaches beyond a hand-to-hand cash payment at a counter. Proposed Treas. Reg. § 49.4475-1(d)(4) lets the government look through steps that change the form of payment without changing its substance. A customer who withdraws cash and then uses it to fund a transfer can still trigger the tax. A third party who supplies the cash for the sender can trigger the same result.

The proposal also narrows some arguments that taxpayers might use to claim an exemption. Cashing a check to fund a remittance transfer does not count as a withdrawal that escapes the tax. International credit cards remain exempt. Treasury and the IRS drew the line around physical funding, not around the destination of the money alone.

The cash definition is narrower than a catch-all label and broader than paper currency. It excludes digital assets, which Treasury and the IRS kept outside the taxable funding category. It includes foreign currencies and traveler’s checks. That distinction matters because the tax is aimed at payments that begin with physical instruments, even if the transfer itself moves through an electronic network.

Providers now have to track whether a transaction was physically funded at the moment the transfer begins. Treasury and the IRS said the proposed regulations align their definitions with the Electronic Fund Transfer Act, 15 U.S.C. §§ 1693 et seq., except for provider thresholds. That alignment gives companies a familiar framework for identifying covered remittance transfers, while leaving the tax rule broader than the consumer law safe harbor.

Treasury’s preamble estimates that the affected transactions average between $290 and $740. It says those transfers are made mostly by unbanked immigrants. The Joint Committee on Taxation projects the tax will raise $10 billion over 10 years from annual flows of about $100B+.

That revenue estimate points to the narrow but financially large slice of the remittance market that the government is trying to reach. The proposed rules do not tax every outward money transfer. They tax a funding method, and they do so on the premise that cash and similar instruments create the clearest path for avoidance if taxpayers can shift a payment into a different wrapper before it reaches a remittance transfer provider.

The compliance calendar started early in the year. The first deposit came due on January 29, 2026. IRS Notice 2025-55, issued in October 2025, offers penalty relief for the first three quarters of 2026 if providers meet conditions that include good-faith compliance. That relief does not erase the tax; it softens enforcement while companies adjust their systems.

Refund rights sit with the sender, not the provider. If a remittance transfer is cancelled or expires, the sender may claim a refund of the excise tax. Remittance transfer providers cannot claim that refund themselves, a distinction that leaves the consumer and the company with separate roles in collection and recovery.

The proposed regulations leave little room for businesses to treat the tax as optional or episodic. A provider that accepts physical funding for an outbound transfer must decide at the start whether the payment falls inside Section 4475, collect the tax, deposit it on schedule, and report it on Form 720. Under REG-114499-25, the government’s message is direct: cash-funded transfers carry the 1% excise tax, and repackaging the payment will not remove it.