If you send money from the U.S. to family overseas, the way you pay for the transfer can now cost you more.
Since January 1, 2026, the federal government has imposed a 1% tax on certain remittance transfers. Send $2,000 using a taxable payment method and the tax is $20. Send the same $2,000 using an excluded payment method and the 1% federal tax does not apply.
The surprising part is that the tax is not based on where you send the money, your immigration status, or how much you earn. It can come down to how you fund the transfer.
That means two people sending the same amount through the same remittance company can potentially face different tax treatment.
Here is what changed, when the 1% applies, and the payment methods that can keep it off your transfer.
The 1% tax is already in effect
The One, Big, Beautiful Bill Act added a new remittance transfer tax to the federal tax code as Section 4475.
The tax applies to certain remittance transfers made after December 31, 2025, meaning it started on January 1, 2026.
The rate is 1% of the amount transferred.
So:
- $500 transfer → $5 tax
- $1,000 transfer → $10 tax
- $2,000 transfer → $20 tax
- $5,000 transfer → $50 tax
The tax is technically the sender’s liability, but the remittance transfer provider is responsible for collecting it when applicable. If the provider fails to collect it, the provider can become liable for the tax instead.
But here’s the part most people need to know
The 1% tax does not apply to every way of sending money abroad.
Under Section 4475, the tax applies when the sender provides certain physical payment instruments to the remittance provider.
The taxable methods include:
- Cash
- Money orders
- Cashier’s checks
- Certain similar physical instruments
The proposed Treasury and IRS regulations also specifically identify traveler’s checks as a similar physical instrument.
So if you walk into a money-transfer location with $2,000 in cash and send that money overseas, the transaction can trigger the 1% federal tax.
That would mean $20 in federal tax, in addition to any transfer fee or exchange-rate spread.
The same $2,000 can avoid the 1% tax
The law specifically excludes transfers funded from certain financial institution accounts.
It also excludes transfers funded with a debit card or credit card issued in the United States.
In practical terms:
| How you fund the transfer | 1% federal remittance tax |
|---|---|
| Cash | Yes |
| Money order | Yes |
| Cashier’s check | Yes |
| Bank account at a qualifying financial institution | No |
| U.S.-issued debit card | No |
| U.S.-issued credit card | No |
This is why the payment method matters.
You could send $2,000 to the same person through the same remittance provider, but changing the funding method can change whether the federal tax applies.
What if you use Remitly, Wise or Western Union?
The company itself does not determine whether the 1% tax applies.
The funding method matters.
For example, if you use an online remittance service and fund the transfer from a qualifying bank account, the transfer is excluded from the federal remittance tax.
If you instead go to an agent location and hand over cash for the transfer, the transaction can be taxable.
The IRS proposed regulations specifically distinguish the source and form of the funds used to make the remittance.
So don’t simply ask, “Does my money-transfer app charge the 1% tax?”
Ask:
“How am I funding this transfer?”
That is the more important question.
A $2,000 transfer could cost you an extra $20
Imagine you regularly send $2,000 to your family overseas.
If you fund the transfer with cash and the transaction is subject to the tax:
$2,000 × 1% = $20
If you do that every month:
$20 × 12 = $240 a year
And that is before considering the provider’s normal transfer fee or exchange-rate margin.
If you instead use a qualifying bank-account withdrawal or an eligible card, the federal 1% remittance tax does not apply.
The difference is not based on your immigration status or whether you are sending money to your parents, spouse or another family member. It is based on whether the transaction meets the statutory conditions for the tax.
Does your visa or citizenship matter?
No.
The remittance tax is not an H-1B tax, green card tax or foreign-worker tax.
It applies based on the transaction.
A U.S. citizen sending money to India can be subject to the tax under the same rules as an H-1B worker sending money to India.
Likewise, an F-1 student, green card holder or other person sending a qualifying remittance is not automatically exempt because of immigration status.
The key question is how the transfer is funded.
What about sending cash to someone who then transfers it?
This is where you should not assume that changing the steps automatically eliminates the tax.
The proposed regulations contain rules dealing with transactions that are structured to look different from a straightforward cash-funded transfer.
For example, if a provider or its agent cashes a check payable to the sender and then uses that cash to fund the remittance, the proposed regulations would treat the remittance as cash-funded.
In other words, simply adding another transaction in the middle does not necessarily turn a taxable cash-funded remittance into a tax-free one.
Is there a minimum amount?
There is a small-value exclusion.
The proposed regulations incorporate the Regulation E definition of a small-value remittance, which currently covers transfers of $15 or less.
For transfers above that amount, there is no general rule that lets you exclude the first portion of the transfer.
So sending $1,000 does not mean only $985 is subject to the tax.
For a taxable $1,000 remittance, the 1% tax is $10.
What about transfer fees?
The 1% tax is calculated on the amount being transferred to the recipient, not on the provider’s separate service fee.
The proposed regulations say the tax base excludes fees paid to the remittance provider, state taxes imposed on the transfer and charges for goods or services that are not transferred to the recipient.
For example, if you send $2,000 and the provider separately charges a $10 transfer fee, the federal remittance tax is based on the $2,000 transfer amount, not the $10 fee.
So the federal tax would be $20 if the transaction is taxable.
Can you get the tax back?
There is an important exception to the idea that the tax is simply gone once it is collected.
The proposed regulations state that if a remittance transfer is canceled or expires and the transfer amount is returned to the sender, the sender may be able to file a claim for a refund of the remittance transfer tax with the IRS.
That is different from getting a normal tax credit on your annual income-tax return.
For a completed transfer, you should not assume that you can simply claim the 1% back when you file your federal tax return.
The easiest way to avoid the tax, where appropriate, is to use a funding method that is excluded from the tax in the first place.
The IRS gave providers temporary penalty relief
There is another detail that can cause confusion.
The IRS issued Notice 2025-55, providing limited relief from failure-to-deposit penalties for remittance transfer providers during the first three calendar quarters of 2026. The relief is aimed at providers implementing the new tax, not at eliminating the tax for senders.
In other words, the existence of penalty relief does not mean the 1% tax disappeared during part of 2026.
The tax itself began January 1, 2026.
What should you do before your next transfer?
If you regularly send money from the U.S. to family overseas, check how you are funding the transaction.
If you use cash: ask whether you can switch to a qualifying bank-account-funded transfer or eligible U.S.-issued card.
If you use a money order or cashier’s check: expect the transaction to fall within the taxable funding methods unless a specific exception applies.
If you use a bank account: check that the transfer is actually funded by a qualifying account rather than by a taxable physical instrument.
If you use a debit or credit card: the statute specifically excludes qualifying card-funded transfers.
And before confirming a transfer, check the provider’s final fee and tax breakdown. Providers may display the tax separately from their normal transfer fee.
The bottom line
The new federal remittance tax sounds simple: 1% on money sent overseas.
But the actual rule is more specific.
The tax applies to certain remittance transfers funded with cash, money orders, cashier’s checks and similar physical instruments.
Transfers funded from qualifying financial institution accounts or with eligible debit or credit cards are excluded from the tax under Section 4475.
So if you are sending money home every month, don’t just look at the transfer fee.
Look at how you are paying for the transfer.
For someone sending $2,000 a month, using a taxable funding method could mean another $240 a year in federal remittance tax.
The same $24,000 sent over the year through an excluded funding method would not incur that 1% federal remittance tax.
Details at a glance
| Item | Details |
|---|---|
| Tax | 1% of qualifying remittance amount |
| Started | January 1, 2026 |
| Taxable funding methods | Cash, money orders, cashier’s checks and similar physical instruments |
| Generally excluded | Funds withdrawn from qualifying financial institution accounts |
| Also excluded | Transfers funded with eligible debit or credit cards |
| Small-value exclusion | Transfers of $15 or less |
| Who pays | Sender |
| Who collects | Remittance transfer provider |
| Immigration status | Does not determine whether the tax applies |
| Transfer fees | Excluded from the tax base |
| Canceled/expired transfer | Refund may be available if the transfer amount is returned |
