WASHINGTON — Treasury has issued new guidance outlining how a 1% federal excise tax on certain remittance transfers will be administered, providing additional clarity for financial institutions and money transfer providers ahead of implementation.
The guidance, published in the Federal Register, details compliance expectations tied to the tax, which took effect Jan. 1, 2026, under legislation enacted in 2025.
The tax applies to certain outbound transfers of money from the United States to recipients in foreign countries when the transaction is funded with cash or similar physical instruments, such as money orders or cashier’s checks, according to Treasury and Internal Revenue Service materials. Electronic transfers funded through bank accounts or debit and credit cards are generally excluded.
Collection, Reporting Requirements
Under the guidance, remittance transfer providers—including banks, credit unions and money services businesses—are responsible for:
- Collecting the 1% tax from the sender at the time of the transaction
- Making semimonthly deposits of the tax to the IRS
- Filing quarterly excise tax returns, typically using Form 720
The tax is imposed on the sender, but providers may be held liable if it is not properly collected, Treasury said.
The first deposits were required in late January 2026, with quarterly reporting obligations continuing throughout the year.
Scope and Applicability
Treasury’s guidance reinforces that the tax applies broadly to individuals regardless of citizenship or immigration status when using covered payment methods. It is assessed on the full amount transferred, not on fees charged by the provider.
The rules also clarify that inbound transfers to the United States are not subject to the tax and that most account-based or digital payments fall outside its scope.
Transitional Relief, Compliance Flexibility
In conjunction with the rollout, Treasury and the IRS have provided limited penalty relief during the initial implementation period in 2026.
Under that relief:
- Providers may avoid certain deposit penalties if they make timely payments, even if amounts are later adjusted
- Any underpayments must be corrected by the due date of the applicable quarterly return
The relief is intended to address operational challenges as institutions update systems and processes to comply with the new tax regime.
Implications for financial institutions
Institutions must update transaction systems to identify taxable transfers, ensure proper tax collection at the point of sale and maintain reporting and recordkeeping processes consistent with federal excise tax rules, analysts said.
