Remittances

A remittance is money sent by a person in one country to a recipient in another. The legal term of art in the United States is remittance transfer, defined by the Electronic Fund Transfer Act at section 919(g) and by Regulation E at 12 CFR 1005.30(e) as the electronic transfer of funds requested by a sender located in a State to a designated recipient, sent by a remittance transfer provider. The definition applies "regardless of whether the sender holds an account with the remittance transfer provider", so a cash transfer at a storefront counts as much as one from a bank app. A "sender" is a consumer in a State who requests the transfer primarily for personal, family or household purposes, and a "designated recipient" is a person specified by the sender to receive it at a location in a foreign country. Regulation E excludes transfers of $15 or less from the term entirely.

That definition now does double duty. It has long set the boundary of the consumer-protection rules in Regulation E's subpart B, which give a sender disclosures, a cancellation window and an error-resolution procedure. Since January 1, 2026 it also sets the boundary of a federal excise tax: Internal Revenue Code section 4475 borrows the same three defined terms and imposes a tax of 1 percent on remittance transfers funded in specific ways.

The tax, in the statute's own words. Section 4475(a) reads: "There is hereby imposed on any remittance transfer a tax equal to 1 percent of the amount of such transfer." It was added by section 70604(a) of Public Law 119-21, the budget reconciliation act enacted July 4, 2025, and section 70604(c) provides that the amendments "shall apply to transfers made after December 31, 2025."

The limitation that most summaries drop. Subsection (c) is headed "Tax limited to cash and similar instruments" and provides that the tax "shall apply only to any remittance transfer for which the sender provides cash, a money order, a cashier's check, or any other similar physical instrument (as determined by the Secretary) to the remittance transfer provider." Subsection (d) then states two situations in which the tax does not apply at all: where the funds are withdrawn from an account held in or by a financial institution described in subparagraphs (A) through (H) of 31 U.S.C. 5312(a)(2) and subject to the Bank Secrecy Act's requirements, and where the transfer is "funded with a debit card or a credit card which is issued in the United States."

Read together, those two provisions decide the whole practical question. A transfer paid for out of a US bank or credit union account is not taxed. A transfer paid for with a US-issued debit or credit card is not taxed. A transfer paid for by handing cash, a money order or a cashier's check across a counter is taxed at 1 percent. The distinction is about the funding method, not about the destination, the amount, the recipient or the sender's status. The practical consequence is that the tax turns on whether a sender has a US bank account or a US-issued card to pay with. Someone with neither has no way to reach either exemption, so the charge lands on the funding channel rather than on anything about the transfer itself.

Who pays and who collects. Section 4475(b)(1) puts the tax on the sender. Section 4475(b)(2) requires the remittance transfer provider to collect it from the sender and remit it quarterly to the Secretary. Section 4475(b)(3) adds secondary liability: where the tax is not paid at the time of the transfer, to the extent it is not collected "such tax shall be paid by the remittance transfer provider." From the sender's side the tax appears as a line at the counter, not as something to file.

The definitions are borrowed, which imports their limits too. Section 4475(e)(1) provides that "remittance transfer", "remittance transfer provider" and "sender" take the meanings given by section 919(g) of the Electronic Fund Transfer Act. So the tax reaches only transactions that are remittance transfers under the consumer statute: a consumer sender in a State, a designated recipient in a foreign country, and a provider that offers remittance transfers in the normal course of its business. Regulation E gives that last phrase a safe harbor at 12 CFR 1005.30(f)(2): a person who provided 500 or fewer remittance transfers in the previous calendar year and provides 500 or fewer in the current one is deemed not to be doing so in the normal course of business. Section 4475(f) closes the obvious workaround by treating a remittance transfer as a financing transaction for the anti-conduit rules in section 7701(l).

Two things the definition excludes that people assume it covers. A payment between businesses is not a remittance transfer, because a sender must be a consumer acting for personal, family or household purposes. And a transfer to a recipient inside the United States is not one either, because a designated recipient must be at a location in a foreign country. Sending money to a relative in another US state is an ordinary domestic transfer, whatever it is called at home.

The consumer-protection side is separate and still applies. Regulation E's subpart B, sections 1005.30 through 1005.36, is a distinct regime giving senders pre-payment and receipt disclosures of the exchange rate, fees and amount to be received, a right to cancel within a short window, and an error-resolution procedure. None of that changed when the tax arrived, and the tax does not alter any of it. What the two now share is a single definition, so a transaction that is a remittance transfer for one purpose is generally a remittance transfer for the other.

Remittances in the economic sense. Outside the statute, the word usually describes the aggregate flow of money sent home by people working abroad, a category large enough to be tracked as a national statistic in many receiving countries. That flow is the reason the consumer rules exist and the reason the tax was written the way it was. This page uses the legal meaning, because that is what determines what any individual sender pays.

At the counter or in the app, the provider computes the amount to be sent, its own fee, the exchange rate and, where the funding method triggers it, the tax. The disclosures required by Regulation E show the sender what the recipient will actually receive. The provider collects the tax with the payment and remits it to the Treasury quarterly.

A hypothetical example, comparing two ways of sending the same money. Marisol wants $1,000 to reach her mother abroad.

She walks into a storefront and pays $1,000 in cash. The transfer is funded with cash, so section 4475(c) is satisfied and the tax applies: $1,000 × 1% = $10. With a provider fee of, say, $8, she pays $1,000 + $10 + $8 = $1,018 at the counter.

Instead, she sends the same $1,000 from her US checking account through the same provider. The funds are withdrawn from an account at a covered financial institution, so section 4475(d)(1) applies and there is no tax. She pays $1,000 + $8 = $1,008. Funding the identical transfer from a US-issued debit card would reach the same result under section 4475(d)(2).

The tax is proportional, so the gap scales. On a $5,000 cash-funded transfer it is $5,000 × 1% = $50; on a $200 one it is $2. Note the arithmetic runs on the amount of the transfer, not on the fee, and that the provider's own fee and exchange-rate margin are separate costs that exist either way.

Pros

• The tax is narrow by design. Anyone funding a transfer from a covered US financial institution account, or with a US-issued card, pays no tax on it.
• The sender does not have to file or calculate anything. The provider collects at the point of sale and remits quarterly.
• The transaction it applies to is already a defined term with published consumer protections, so senders receive disclosures showing exactly what the recipient will get.
• The rate is a flat 1 percent of the amount, which is simple to check against the receipt.

Cons

• It falls on cash-funded transfers, and a sender who has neither a US bank account nor a US-issued card cannot reach either exemption, so the burden does not track ability to pay.
• It is charged on the gross amount sent, not on the provider's fee, so it stacks on top of a spread and a fee that were already the main costs.
• Widespread reporting described it as a flat tax on all remittances, so many senders believe they owe it when they do not, and some who do are surprised at the counter.
• The line between a taxed and an untaxed transfer is the funding method, a detail a sender may not think of as a decision at all.
• Providers carry secondary liability if they fail to collect, which is a compliance cost that can find its way back into pricing.