What Is the Remittance Transfer Tax?

 Posted on July 15, 2026 in Taxation Law

The tax laws in the United States are updated regularly, and the changes that are put in place may affect both individual taxpayers and businesses. One recent change may affect people in the United States who send money to people in other countries and businesses that handle these financial transfers. A new remittance transfer tax may be collected in certain cases, and if it is not paid correctly, a business may be liable for paying the taxes that are owed.

The failure to collect or pay taxes as required by the IRS can lead to serious problems for businesses. Providers that handle the transfer of money outside the United States will be required to report transactions on tax returns, and they may be liable for any errors that are made. To ensure that taxes will be collected and paid correctly, or to address any taxes or penalties that may be owed, businesses should consider working with a skilled tax attorney.

Understanding Taxes on Remittances

When people in the United States send money to family members or other recipients in foreign countries, these are known as remittances. These payments are often made through Money Services Businesses (MSBs). According to the Treasury Department, the amount of money transferred through MSBs has grown significantly in recent years. In 2019, MSBs facilitated transfers of around $236 billion to people in foreign countries. By 2022, this amount grew to around $965 billion.

As part of the One Big, Beautiful Bill Act that was passed by Congress in 2025, a new excise tax was created that will apply to certain types of transfers. The remittance transfer tax applies in cases where "physical instruments" are used to make transfers through MSBs. These instruments include cash, money orders, and cashier’s checks. Direct transfers from banks will not be taxed, including when making payments using debit cards, credit cards, and checks. However, if a person cashes a check at a business and transfers the money they receive through a remittance, taxes will apply.

The remittance transfer tax imposes a 1% tax on the total amount transferred to the recipient. Any fees or state taxes that apply to transactions will not be included in the taxable amount. For example, if a person uses cash to transfer $500 to someone in a foreign country, and an MSB charges fees of $10 and state taxes of $6, the remittance transfer tax will only apply to the $500 that is transferred to the recipient. At the rate of 1%, the tax would be $5.

MSBs are responsible for collecting the remittance transfer tax when payments involving physical instruments are made to people in foreign countries. They are required to make semimonthly deposits to the IRS and file quarterly tax returns using Form 720. The remittance transfer tax went into effect on January 1, 2026, and the first semimonthly payments were due on January 29, 2026.

Businesses that fail to collect the remittance transfer tax as required will be responsible for paying the amounts owed to the IRS. Failure-to-deposit penalties will also apply. However, the IRS is providing relief from penalties during the first three quarters of 2026 in cases where businesses can show reasonable cause.

Contact Our San Jose, CA Tax Attorney

When new tax laws go into effect, some businesses or other taxpayers may be unaware of these changes, or they may be unsure about their requirements. However, taxes and penalties may still need to be paid. At John D. Teter Law Offices, our San Jose tax lawyer can provide guidance on how to address penalties related to the remittance transfer tax and determine how a taxpayer can receive relief. He can also help businesses take steps to prevent penalties or other tax problems in the future. Contact our firm at 408-866-1810 to set up a consultation and get help with tax-related issues.