The US 1% remittance tax and the CFPB Remittance Rule: what senders and providers need to know

A 1% federal excise tax applies to remittance transfers sent from the United States after 31 December 2025, but only when the sender funds the transfer with cash, a money order, a cashier's check or a similar physical instrument. Transfers funded from a bank account or with a US-issued debit or credit card are excluded. The sender owes the tax and the provider collects it. Separately, the CFPB's Remittance Rule (Regulation E, subpart B) still governs what providers must disclose, the sender's 30-minute cancellation right and how errors are resolved.

The two regimes answer different questions. The tax decides what a transfer costs the sender and what the provider must remit to the IRS. The Remittance Rule decides what the sender must be told, when they can change their mind and what happens when the money does not arrive as promised.

What is the 1% remittance transfer tax?

The tax is in section 4475 of the Internal Revenue Code, added in 2025. IRS guidance describes it as a 1% tax on the amount of certain remittance transfers that occur after 31 December 2025, applying only where the sender provides cash, a money order, a cashier's check or another similar physical instrument to the remittance transfer provider. IRS Notice 2025-55

The tax is excluded where the funds are withdrawn from an account held at a financial institution covered by the Bank Secrecy Act, or where the transfer is funded with a debit or credit card issued in the United States. Internal Revenue Bulletin 2026-18 For most app-based and online senders who pay from a bank account or a US card, the tax therefore does not apply. It falls mainly on walk-in, cash-funded transfers.

Who pays the tax, and who files it?

The sender owes the tax. The provider collects it from the sender and remits it to the IRS, reporting it on Form 720, the quarterly federal excise tax return. If the provider does not collect the tax, it becomes the provider's liability. IRS: proposed regulations on the remittance transfer tax

Treasury and the IRS published proposed regulations (REG-114499-25) in April 2026. Federal Register: Excise Tax on Remittance Transfers As described in the April 2026 Internal Revenue Bulletin, the proposals would:

• treat money orders, cashier's checks and traveler's checks paid by the sender as taxable, regardless of how the sender bought them;
• treat a transfer funded by cashing a personal or business check payable to the sender as a cash transfer;
• let a sender claim a refund of tax paid on a cancelled or expired transfer, if the provider has not already refunded it.

These are proposals. Check the final regulations before building product logic on them.

What penalty relief exists for providers?

Because providers had no prior quarter of this tax to base deposits on, the IRS gave relief. Notice 2025-55 treated a provider as meeting the reasonable-cause standard for failure-to-deposit penalties if it made timely deposits, even if the amounts were computed incorrectly, and paid any quarterly underpayment in full by the Form 720 due date. That relief covered the first three calendar quarters of 2026. IRS Notice 2025-55

Notice 2026-52, published in Internal Revenue Bulletin 2026-43 on 19 October 2026, extends the relief to semimonthly deposit periods ending before the applicability date of final regulations under section 4475. IRS Notice 2026-52 The relief applies to penalties, not to the tax itself: the tax is still owed.

What does the CFPB Remittance Rule require?

The Remittance Rule is subpart B of Regulation E (12 CFR 1005.30 to 1005.36). eCFR: 12 CFR Part 1005 Subpart B The CFPB summarises the sender's rights as disclosure of costs before paying, a receipt showing when the money will be available, a right to cancel and a right to have errors investigated. CFPB: What is a remittance transfer and what are my rights?

The 500-transfer safe harbour has applied since 21 July 2020, when the CFPB raised it from 100. Federal Register: 2020 Remittance Rule amendments Note that the proposed tax regulations state that this Regulation E safe harbour does not apply for excise tax purposes: a small provider outside the Remittance Rule can still have to collect the tax.

How the two regimes interact in one transfer

Consider an illustrative walk-in transfer of USD 500 paid in cash:

1. Before payment, the provider gives the Regulation E pre-payment disclosure: amount, fees, exchange rate and the amount the recipient will receive. Whether and how to show the 1% tax on the disclosure is a design question for the provider's compliance team; the safest product choice is to show it explicitly as a separate line so the total is clear.
2. At payment, the provider collects the USD 500, its fee and USD 5 of excise tax (1% of the transfer amount, illustrative).
3. Within 30 minutes, the sender cancels. The provider refunds within three business days. The proposed regulations would let the sender claim back the tax if the provider has not refunded it, so decide up front whether the provider refunds the tax with the principal.
4. At quarter end, the provider reports the tax on Form 720 and reconciles collected tax against transfers that completed, were cancelled or expired.

The same transfer funded from the sender's bank account would carry no excise tax, but every Remittance Rule step would still apply.

What should a remittance product team do now?

• Tag the funding source on every transfer. Cash, money order, cashier's check and traveler's check drive the tax; bank account and US-issued card funding exclude it. If the funding source is not stored, the tax cannot be computed or evidenced.
• Keep tax as its own ledger entry, separate from fees, so refunds, cancellations and Form 720 totals reconcile. See how remittance cost is measured for why total cost presentation matters.
• Review agent and walk-in channels first. That is where cash funding concentrates.
• Track the final regulations. The proposed rules may change, and the penalty relief ends when final rules apply.
• Check licensing separately. The tax and the Remittance Rule do not license anyone; state money transmission licensing still applies. See do you need a money transmitter license and the Money Transmission Modernization Act.

FAQ

Do I pay the 1% remittance tax if I send money abroad from my bank account?

No. The tax applies to transfers funded with cash, a money order, a cashier's check or a similar physical instrument. Transfers funded from an account at a US financial institution or with a US-issued debit or credit card are excluded.

When did the US remittance tax start?

It applies to remittance transfers made after 31 December 2025, so from 1 January 2026.

Who collects the remittance transfer tax?

The remittance transfer provider collects it from the sender and reports it to the IRS on Form 720. If the provider fails to collect it, the provider becomes liable for it.

How long do I have to cancel an international money transfer in the US?

Under the CFPB Remittance Rule, the provider must honour a cancellation received within 30 minutes of payment, as long as the money has not been picked up or deposited. The refund is due within three business days.

What can I do if my remittance never arrived?

Report it to the provider within 180 days of the availability date on your receipt. The provider must investigate and decide within 90 days, then tell you the result.