The 1% Remittance Excise Tax: Where Enforcement Stands in 2026

Since January 1, 2026, a new federal excise tax has applied to certain money transfers sent from the United States to recipients abroad. The tax itself is simple — 1% of the amount transferred. The enforcement mechanics behind it are not. Six-plus months in, a clearer picture has emerged of who collects it, who's liable when it isn't collected, what penalty relief exists, and where the compliance gaps are already showing up.

The tax, briefly

Enacted as part of the One Big Beautiful Bill Act (OBBBA) and codified as new IRC §4475, the remittance transfer tax imposes a 1% excise tax on the amount of any "taxable remittance transfer" — a transfer initiated by a domestic sender and received by a recipient outside the United States — but only when the sender funds the transfer with cash, a money order, a cashier's check, or a similar physical instrument. The rate landed at 1% after starting much higher in early legislative drafts (an initial proposal was 5%, later reduced to 3.5%, before settling at 1% in the final bill signed July 4, 2025).

Transfers funded electronically — from a bank account, debit card, or credit card — are outside the tax's scope. That distinction is doing a lot of work in how the tax is actually playing out.

Who's responsible for collecting it

The sender legally owes the tax, but the compliance burden sits with remittance transfer providers — banks, credit unions, money transmitters like Western Union and MoneyGram, and similar businesses that execute these transfers. Providers must:

• Collect the 1% tax from the sender at the time of the transfer
• Make semimonthly deposits with the IRS (the first deposit came due January 29, 2026)
• File quarterly returns on Form 720, Quarterly Federal Excise Tax Return

If a provider fails to collect the tax from a sender, the provider becomes secondarily liable for the unpaid amount — meaning a transfer effectively can't be completed without either collecting the tax or the provider absorbing the exposure itself. In practice, this pushes the entire compliance apparatus onto providers rather than the millions of individual senders making transfers at counters and kiosks across the country.

The IRS has already granted temporary penalty relief

Standing up semimonthly deposit and quarterly filing systems for a brand-new tax, across tens of thousands of provider locations, was never going to happen cleanly on day one. The IRS acknowledged as much in October 2025, before the tax even took effect, issuing Notice 2025-55.

Under that notice, providers can avoid the failure-to-deposit penalty under IRC §6656 for the first three calendar quarters of 2026 if they meet two conditions:

• They make timely deposits on the required semimonthly due dates — even if the amount is calculated incorrectly, and
• Any underpayment for the quarter is paid in full by the due date of that quarter's Form 720.

Providers can also continue relying on the existing "deposit safe harbor" rules even where an underpayment occurred during this window, as long as they meet the reasonable cause standard. The relief is explicitly temporary — a bridge while providers without a prior quarter's data to calculate deposits against get their systems in place. Beginning with the fourth quarter of 2026, standard deposit and penalty rules apply in full.

Proposed regulations are filling in the details

In April 2026, Treasury and the IRS issued proposed regulations (REG-114499-25) to clarify how the tax operates in practice. Among the key clarifications:

• The tax is triggered only when the sender funds the transfer with one of the specified physical instruments — cash, money order, cashier's check, or similar
• The tax base is the amount received by the designated recipient, not the amount the sender pays (which may include a separate transfer fee)
• The tax attaches at the time the transfer is made — specifically, the earlier of when the provider initiates the transfer or when the sender pays the provider or its agent

The comment period on the proposed regulations closed June 12, 2026, and final rules are expected to follow.

Where enforcement is running into friction

Real-world compliance is proving harder to pin down than the statute suggests, for a few reasons:

• The tax turns on funding method, not sender identity. Because liability is tied to how a transfer is funded rather than who sends it, a sender can simply avoid the tax by switching from a cash transaction at a physical counter to a bank-account or card-funded digital transfer — services many providers, including some of the largest names in the industry, already offer tax-free under this structure.
• Enforcement leans on provider audits, not individual senders. For the large volume of small-dollar transfers, going after individual senders directly isn't practical. The IRS's realistic enforcement lever is auditing provider collection and deposit practices.
• Some money is reportedly migrating to channels the tax can't reach at all — informal cash networks and other rails outside the traditional, regulated remittance system — which undercuts both the tax's revenue projections and the government's visibility into these transfers. The Joint Committee on Taxation projected roughly $10 billion in revenue from the tax between 2026 and 2034; whether that projection holds depends heavily on how much behavior shifts in response.

What providers and senders should be doing now

For remittance transfer providers:

• Confirm systems correctly distinguish cash/money order/cashier's-check-funded transfers (taxable) from bank- and card-funded transfers (exempt)
• Take advantage of the Notice 2025-55 relief window for Q1–Q3 2026, but don't treat it as permanent — Q4 2026 deposits are subject to standard penalty rules
• Watch for final regulations following the June 2026 comment period, which may refine timing and tax-base calculations
• Maintain clear records showing the funding method for every transfer, since that's the fact the entire tax turns on

For senders:

• Understand that the 1% line item on a transfer receipt is a federal tax the provider is required to collect — not a provider fee, and not something to dispute with the provider
• Funding a transfer from a bank account, debit card, or credit card generally avoids the tax entirely; funding with cash, a money order, or a cashier's check does not

The bottom line

The 1% remittance excise tax is simple in concept but is testing the limits of how a tax tied to a funding method, collected by a third party, and enforced mostly through provider compliance actually holds up at scale. The IRS's temporary penalty relief buys providers time through the first three quarters of 2026, and proposed regulations are narrowing some of the open questions — but the more consequential question, for revenue and for enforcement alike, is how much sending behavior simply shifts to funding methods and channels the tax doesn't reach.

This article is provided for general informational purposes only and does not constitute tax, accounting, or legal advice. Tax rules change and apply differently to each situation — please consult a qualified advisor before acting on anything discussed here.