July 28, 2025

What the New Remittance Transfer Excise Tax Means for Businesses

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Overview of the Remittance Transfer Excise Tax

Do you effect transfers of funds for US residents to recipients abroad? If so, you should review the provision of the “One Big Beautiful Bill Act” (“OBBBA”) that imposes a new excise tax on cross-border transfers. The legislation puts the onus on the providers of cross-border transfer services to collect the tax. The OBBBA uses the term “remittance transfer” to describe the transfers subject to the tax—but do not be misled by that label. The term “remittance transfer” potentially captures many cross-border transfers that one would not normally think of as “remittances.” However, there are some broad exemptions that will cover many common types of cross-border transfers.

President Donald Trump signed the OBBBA on July 4, 2025. Section 4475 of the OBBBA imposes an excise tax of 1%1 on certain cross-border transfers. The 1% is calculated based on the amount of the transfer—not the service provider’s fees.

The bill, as originally proposed, would have applied to any transfer that qualifies as a “remittance transfer” under the Consumer Financial Protection Bureau’s (“CFPB”) “Remittance Transfer Rule” (“RTR”). The RTR’s definition of “remittance transfer” sweeps in a broad range of transfers—including bank-to-bank transfers. Fortunately, the OBBBA, as finally enacted, narrowed the scope to remittance transfers in which the sender provides cash, a money order, a cashier’s check, or other similar physical instrument.

The “sender” is required to pay the tax, but the “remittance transfer provider” must collect the amount of tax imposed at the time the transfer is made and remit the tax to the Internal Revenue Service. If the sender fails to comply with its obligation at the time the transfer is made, then the “remittance transfer provider” that facilitates the transfer becomes secondarily liable for such payment.

This alert describes the key provisions of Section 4475, and explains their application to various types of cross-border transfers.

Applicable EFTA Definitions

Section 4475 incorporates the definition of “remittance transfer” in the Electronic Fund Transfer Act (“EFTA”). The regulations that implement the EFTA are issued by the CFPB, and are collectively known as “Regulation E.”

Under the EFTA, a “remittance transfer” is defined as “the electronic transfer of funds requested by a sender to a designated recipient that is sent by a remittance transfer provider.”2 Remittance transfers include:

  • Transfers conducted through a money transmitter or financial institution;
  • Wire transfers conducted by a financial institution;
  • Addition of funds to a prepaid card by a participant in a prepaid card program, even if the sender has the ability to withdraw funds added;
  • International Automated Clearing House (“ACH”) transactions; and
  • Online bill payments and other electronic transfers scheduled in advance.3

The “sender” with respect to a remittance transfer is an individual “consumer in a State who primarily for personal, family, or household purposes requests a remittance transfer provider to send a remittance transfer to a designated recipient.”4 This definition of “sender” limits the scope of the term “remittance transfer” in several key ways:

  • As noted, it limits the scope to transfers that are initiated by an individual “consumer . . . primarily for personal, family, or household purposes.” This means that commercial-purpose transfers are not covered.
  • It applies only if the consumer is located “in a State.” Regulation E explains that “in a State” means within the United States, a US Territory, or on a US military base.
  • If the transfer is funded in-person at a physical location, then the consumer is “in a State” if the physical location is in a State. If the transfer is funded by an account of a consumer (other than a prepaid account), then the consumer is considered “in a State” if the account is located in a State. 5 For a prepaid account-funded transfer, the question is whether the consumer is physically located in a State at the time that the consumer initiates the transfer.

The “designated recipient” is “any person specified by the sender as the authorized recipient of a remittance transfer to be received at a location in a foreign country.”6 This excludes from the term “remittance transfer” any transfer to be received by the recipient in the United States. 
The “remittance transfer provider” is “any person that provides remittance transfers for a consumer in the normal course of its business, regardless of whether the consumer holds an account with such person.”7

Exceptions to the Excise Tax

The excise tax does not apply to remittance transfers for which the funds being transferred are­—

  • withdrawn from an account held in certain “financial institutions” that are subject to the recordkeeping and reporting requirements of the Bank Secrecy Act (“31 U.S.C. §§ 5311 et seq.”) (i.e., a financial institution that is a US bank or credit union, US broker-dealer, or a US agency or branch of a foreign bank that is subject to the Bank Secrecy Act’s recordkeeping and reporting requirements); or  
  • funded with a debit card or a credit card issued in the United States.
Interaction With Anti-Conduit Regulations

The anti-conduit regulations permit the Internal Revenue Service to recharacterize multiple-party financing transactions by disregarding the participation of one or more intermediate entities, when such participation is pursuant to a tax avoidance plan. Under the current anti-conduit regulations, a “financing transaction” is defined as (i) debt; (ii) certain stock in a corporation (or similar interest in a partnership, trust, or other person); (iii) any lease or license; and (iv) any other transaction pursuant to which a person makes an advance of money or other property or grants rights to use property to a transferee who is obligated to repay or return a substantial portion of the money or other property advanced, or the equivalent in value. Section 4475 expands this definition to include any remittance transfer. This rule appears to be intended to target those individuals that form an entity to send funds abroad in order to not be subject to this excise tax.

Key Changes from Prior Versions of Section 4475 

Some of the most significant differences between the final legislation and the prior versions of Section 4475 relate to the exceptions to the imposition of the excise tax. The House bill included an exception for “qualified remittance transfer providers,” which would have effectively required a remittance transfer provider to enter into an agreement with the Internal Revenue Service in order to exempt US citizens and nationals from being subject to Section 4475. Further, sections regarding the proposed tax credit and reporting requirements were removed before passage, lessening the administrative burden of the tax. However, it is important to note that under the enacted Section 4475, a US citizen or national may be subject to the excise tax and will not be allowed a credit for such tax, assuming one of the two aforementioned exceptions is not applicable. Lastly, the excise tax was also reduced from 3.5% to 1%.

Issues and Considerations

As noted, Section 4475 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. Section 4475 does not define or further distinguish between cash versus non-cash transfers. Cash is also not defined in the EFTA. However, the context of the term’s usage in Section 4475 suggests that Congress intended for the term to capture only physical currency, although this is not without doubt. Interested parties, e.g., licensed money transmitters and fintechs that would not benefit from the banking exception, may want to consider approaching the Internal Revenue Service to make this explicit in regulations implementing Section 4475. Although this will not be a critical question for transactions funded by an account at a US bank, credit union, or broker-dealer (due to the exception described above), it could be important with respect to accounts at other types of entities, such as licensed money transmitters.

Additionally, although the term “cash” normally refers only to fiat currency, cryptocurrency service providers also should consider approaching the Internal Revenue Service to make this explicit in regulations implementing Section 4475.

If you have any questions or concerns about Section 4475 or its potential impact on your business, please contact us.

 


 

1 The original bill had proposed a 5% tax. This was lowered to 3.5% by the “Manager’s Amendment,” and the final Senate-passed bill lowered the tax even further to 1%.

2 12 C.F.R. § 1005.30(e)(1).

3 Fed. Deposit Ins. Corp., FIL-19-009B, Laws and Regulations EFTA––Electronic Fund Transfer Act, 51 (Feb. 2019), https://www.fdic.gov/news/financial-institution-letters/2019/fil19009b.pdf.

4 12 C.F.R. § 1005.30(g).

5 12 C.F.R. Part 1005, Supp. I § 30(g)-1.

6 12 C.F.R. § 1005.30(c).

7 12 C.F.R. § 1005.30(f)(1).

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