The Internal Revenue Service (IRS) and the Department of the Treasury recently issued proposed regulations explaining the implementation of a 1% “remittance tax” on cross-border transfers. The cross-border “remittance tax” stems from the One Big Beautiful Bill Act that came into effect in 2025. According to this act, any money transferred to the U.S. from abroad through non-bank channels will be subject to a 1% tax, a provision that applies to everyone, including U.S. citizens.
The IRS stated on Friday that starting from January 1, 2026, individuals using cash, money orders, or similar physical instruments to make transfers through remittance service companies will be taxed. The tax is the responsibility of the sender, with the remittance service companies collecting it every two weeks and filing quarterly reports with the IRS using Form 720.
However, individuals who transfer money through regular bank accounts, securities accounts, or by using U.S.-issued credit and debit cards are eligible for an exemption from the tax.
Cross-border remittances are a common practice for immigrants working in the U.S. to send a portion of their earnings back to their home countries. Each year, billions of dollars are transferred from the U.S. to other countries through remittances.
According to a report by the Center for Global Development, the new remittance tax could significantly reduce remittances flowing to immigrant source countries, with Mexico expected to be the most affected. Other countries facing severe impacts include China, India, the Philippines, Guatemala, the Dominican Republic, and El Salvador.
The regulations proposed by the IRS and the Treasury Department aim to clarify the specific application of the “remittance tax.” According to the announcement, individuals will be required to pay the tax on outbound transfers, regardless of whether the recipient ultimately receives the money.
If a transfer expires or is canceled, and the remittance service company refunds the amount to the sender, the sender can apply for a refund of the “remittance tax” already paid.
Citing data, the IRS stated that there are approximately 600 licensed remittance companies in the U.S., with over 200 companies operating through around 500,000 authorized agent locations.
The announcement highlighted that from 2019 to 2024, the total amount of outbound transfers through these remittance companies increased from $1.3 trillion to $4 trillion, averaging about $520 billion per year, with the average transfer amount ranging between $290 and $740.
The non-partisan organization, the Federation for American Immigration Reform (FAIR), criticized remittances in a report last July, claiming that these financial outflows cost the U.S. economy at least $200 billion annually, an amount sufficient to fund both the Department of Homeland Security and the State Department simultaneously. The report pointed out that “the money being sent out does not contribute to consumption within the U.S. and cannot be used to purchase American goods and services.”
Lora Ries, Director of the Border Security and Immigration Center at the Heritage Foundation, stated in an interview with Fox News Digital last year that the purpose of the remittance tax may be to deter illegal immigration into the U.S. by making remittances more challenging. Working in the U.S. to earn money and sending it back to their home countries is a common goal for illegal immigrants entering the U.S.
The Trump administration has also been cracking down on receiving public benefits and transferring funds abroad. Additionally, at the end of last year, the Financial Crimes Enforcement Network (FinCEN) of the Treasury Department issued a warning to remittance service institutions to be vigilant of cross-border remittance activities by illegal immigrants within the country.