Excise Tax on Remittance Transfers

DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Parts 40 and 49 [REG-114499-25] RIN 1545-BR98 Excise Tax on Remittance Transfers AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Notice of proposed rulemaking. SUMMARY: This document contains proposed regulations that would provide rules and definitions related to the excise tax imposed on certain remittance transfers that occur after December 31, 2025. The proposed regulations would affect certain remittance transfer providers and certain individuals sending remittance transfers. DATES: Electronic or written comments and requests for a public hearing must be received by June 12, 2026. ADDRESSES: Commenters are strongly encouraged to submit public comments electronically. Submit electronic submissions via the Federal eRulemaking Portal at https://www.regulations.gov (indicate IRS and REG-114499-25) by following the online instructions for submitting comments. Requests for a public hearing must be submitted as prescribed in the “Comments and Requests for a Public Hearing” section. Once submitted to the Federal eRulemaking Portal, comments cannot be edited or withdrawn. The Department of the Treasury (Treasury Department) and the IRS will publish for public availability any comment submitted to the IRS's public docket. Send paper submissions to: CC:PA:01:PR (REG-114499-25), Room 5503, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, Julia Barlow of the Office of the Associate Chief Counsel (Energy, Credits, and Excise Tax), (202) 317-6855 (not a toll-free number); concerning submission of comments or request for a public hearing, Publications and Regulations Section at (202) 317-6901 (not a toll-free number) or by email at publichearings@irs.gov (preferred). SUPPLEMENTARY INFORMATION: Authority This notice of proposed rulemaking contains proposed amendments that would revise the Excise Tax Procedural Regulations (26 CFR part 40) and add new amendments to the Facilities and Services Excise Tax Regulations (26 CFR part 49) under section 4475 of the Internal Revenue Code (Code), as enacted by Public Law 119-21, 139 Stat. 72 (July 4, 2025), commonly known as the One, Big, Beautiful Bill Act (OBBBA). These proposed amendments are issued under the authority granted by section 4475(b) and (c) of the Code, which authorize the Secretary of the Treasury or the Secretary's delegate (Secretary) to provide the time and manner of collection of the tax imposed by section 4475(a) (remittance transfer tax) and to determine the instruments that constitute “similar physical instrument[s]” for purposes of the tax. Additionally, these proposed regulations are issued pursuant to section 7805(a) of the Code, which authorizes the Secretary to “prescribe all needful rules and regulations for the enforcement of [the Code], including all rules and regulations as may be necessary by reason of any alteration of law in relation to internal revenue.” Background Section 4475 was added to chapter 36 of the Code by section 70604 of the OBBBA. The remittance transfer tax imposed by section 4475(a) is a 1 percent tax on the amount of certain remittance transfers that occur after December 31, 2025. Section 4475(b)(1) and (2) provide that the remittance transfer tax is paid by the sender, and that the remittance transfer provider collects and remits the remittance transfer tax quarterly to the Secretary at the time and in the manner provided by the Secretary. Section 4475(b)(3) provides that, if the remittance transfer tax is not collected at the time the remittance transfer is made, the tax must be paid by the remittance transfer provider. Section 4475(c) provides that the remittance transfer tax applies only to remittance transfers 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(d) provides that the remittance transfer tax does not apply to any remittance transfer for which the funds being transferred are (1) withdrawn from an account held in or by a financial institution described in subparagraphs (A) through (H) of section 5312(a)(2) of title 31 of the U.S. Code (title 31), and subject to the requirements under subchapter II of chapter 53 of title 31, or (2) funded with a debit card or a credit card issued in the United States. Section 4475(e) defines several terms fundamental to the remittance transfer tax by cross-reference to the Electronic Fund Transfer Act (EFTA) (15 U.S.C. 1693-1693r). Section 4475(f) provides that, for purposes of section 7701(l) of the Code, with respect to any multiple-party arrangements involving the sender, a remittance transfer is treated as a financing transaction. Because section 4475 was added to chapter 36 of the Code, and because quarterly remittances of the remittance transfer tax are explicitly required by section 4475(b)(2), the remittance transfer tax will be reported on Form 720, Quarterly Federal Excise Tax Return, by the remittance transfer provider as the collector. See 26 CFR 40.0-1(a) and 40.6011(a)-1(a)(1). Section 6302 of the Code authorizes the Secretary to establish the mode and time for collecting certain taxes, including the taxes imposed by chapter 36. Section 40.6302(c)-1(a)(1), which constitutes an exercise of authority under section 6302(a), requires each person that is required to file Form 720 to make deposits of tax. Accordingly, collectors of the remittance transfer tax are also required to make semimonthly deposits of tax pursuant to § 40.6302(c)-1(a)(1). Those deposits are payments toward an amount that is not fully determined until filing, and are distinguishable from the quarterly remittances of tax required by section 4475(b)(2). Pursuant to § 40.0-1(c), a semimonthly period is the first 15 days of a calendar month or the portion of a calendar month following the 15th day of the month. In Notice 2025-55, 2025-43 I.R.B. 625 (October 20, 2025), the Treasury Department and the IRS provided relief from failure to deposit penalties under section 6656 of the Code in connection with the remittance transfer tax for the first three calendar quarters of 2026. Notice 2025-55 also provides that a remittance transfer provider's ability to use the deposit safe harbor under § 40.6302(c)-1(b)(2) will not be affected by a failure during the first three calendar quarters of 2026 to make deposits of the remittance transfer tax as required under part 40, provided the remittance transfer provider satisfies the reasonable cause exception under section 6656(a). Explanation of Provisions I. Proposed Amendments to 26 CFR Part 40 Section 40.0-1(a) provides generally that the regulations in part 40 set forth administrative provisions relating to the excise taxes imposed by chapters 31 through 34, 36, 38, 39, 49, and 50A of the Code. Proposed § 40.0-1(a) would amend that paragraph by referencing the remittance transfer tax imposed by section 4475 as a tax imposed under chapter 36. Proposed § 40.0-1(e) would amend the applicability dates to reflect the proposed change to § 40.0-1(a). II. Proposed Amendments to 26 CFR Part 49 A. Definitions Section 4475(e) defines several terms by cross-reference to definitions in the EFTA. Specifically, section 4475(e)(1) provides that the terms “remittance transfer,” “remittance transfer provider,” and “sender” have the meanings provided in section 919(g) of the EFTA. The cross-referenced definitions incorporate other terms defined in the EFTA: specifically, “State,” “consumer,” and “designated recipient.” Section 4475(e)(2) defines the term “credit card” by reference to section 920(c)(3) of the EFTA, which in turn references section 1602 of title 15 of the U.S. Code. Section 4475(e)(3) defines the term “debit card” by reference to section 920(c)(2) of the EFTA, without regard to section 920(c)(2)(B) of the EFTA (which provides that the term “debit card” includes a general-use prepaid card, as that term is defined in section 915(a)(2)(A) of the EFTA). To effectuate section 4475(e) and reduce compliance burdens on remittance transfer providers, the proposed regulations would generally draw on the EFTA definitions of the terms cross-referenced in 4475(e) in a manner that is consistent with the interpretation of such terms in regulations issued by the Consumer Financial Protection Bureau, see 12 CFR part 1005 (Regulation E), to the extent such interpretations are consistent with the statutory provisions governing the remittance transfer tax and principles of sound tax administration. Proposed § 49.4475-1(b)(1) would define the term “cash” as United States dollars or any foreign currency in physical form that is issued by a government or a central bank. Proposed § 49.4475-1(b)(2) would define the term “consumer” as a natural person, which is consistent with the EFTA. See section 903(6) of the EFTA and 12 CFR 1005.2(e). While the EFTA definition of the term “consumer” is not explicitly cross-referenced in section 4475(e), it is implicated by the cross-referenced definition of the term “sender” in section 4475(e)(1). Proposed § 49.4475-1(b)(3) would define the term “designated recipient” as any person specified by the sender as the authorized recipient of a remittance transfer to be received at a location in a foreign country. See section 919(g)(1) of the EFTA; 12 CFR 1005.30(c). A remittance transfer is received at a location in a foreign country if funds are to be received at a location physically outside of any State. See 12 CFR part 1005, supp. I (comment to 30(c), “designated recipient”). This proposed definition would ensure alignment with the EFTA and would clarify the determination of the location of a recipient and, thus, the determination of the taxability of the transaction. Consistent with section 4475(e)(1), proposed § 49.4475-1(b)(4)(i) would define the term “remittance transfer” as the electronic transfer of funds requested by a sender to a designated recipient that is sent by a remittance transfer provider. The term applies regardless of whether the sender holds an account with the remittance transfer provider. See section 919(g)(2)(A) of the EFTA; 12 CFR 1005.30(e). Proposed § 49.4475-1(b)(4)(ii)(A) and (B) would incorporate two exclusions found in the EFTA and Regulation E: one for small-value transactions, and one for transfers that fund the purchase of certain securities and commodities. See section 919(g)(2)(B) of the EFTA; 12 CFR 1005.30(e)(2). These exclusions would serve to align the scope of remittance transfers subject to the EFTA with those potentially subject to the remittance transfer tax. Proposed § 49.4475-1(b)(5)(i) would define the term “remittance transfer provider,” consistent with section 4475(e)(1), the EFTA, and Regulation E, as 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. See section 919(g)(3) of the EFTA; 12 CFR 1005.30(f). A person is not a remittance transfer provider merely because it performs activities as an agent on behalf of a remittance transfer provider. See 12 CFR part 1005, supp. I (comment to 30(f), “remittance transfer provider”). For example, a grocery store would not be a remittance transfer provider merely because it acts as an agent of a remittance transfer provider to offer consumers remittance transfer services. The Treasury Department and the IRS are aware that Regulation E provides a safe harbor in 12 CFR 1005.30(f)(2) under which a person is deemed not to be providing remittance transfers for a consumer in the normal course of its business if the person provided 500 or fewer remittance transfers in the previous calendar year and provided 500 or fewer remittance transfers in the current calendar year. Proposed § 49.4475-1(c)(5)(ii) would depart from Regulation E in this regard by providing that this normal course of business safe harbor does not apply to section 4475(a). This departure is necessary because otherwise the rule would have the potential to create inconsistent tax results for senders in otherwise identical remittance transfer transactions. Consistent with section 4475(e)(1), the EFTA, and Regulation E, proposed § 49.4475-1(b)(6) would define the term “sender” as a 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. See section 919(g)(4) of the EFTA; 12 CFR 1005.30(g). The Treasury Department and the IRS understand that many remittance transfer providers may already structure their businesses to distinguish consumer and business services for purposes of compliance with the EFTA and possibly other applicable regulatory regimes. For consistency and to minimize costs to remittance transfer providers, a remittance transfer provider's classification of a remittance transfer's purpose (for personal, family, household, or other purpose) should be the same under the EFTA and the remittance transfer tax. Proposed § 49.4475-1(b)(7) would define the term “State” as any State or territory of the United States, or the District of Columbia. While the EFTA definition of the term “State” is not explicitly cross-referenced in section 4475(e), it is implicated by the cross-referenced definition of the term “remittance transfer” in section 4475(e)(1). For this reason, the proposed regulations would reflect the EFTA definition of “State,” found in section 903(11) of the EFTA, rather than the definition provided in section 7701(a)(10). Although otherwise identical to the definition of the term “State” provided in 12 CFR 1005.2(l), proposed § 49.4475-1(b)(7) would omit from that definition the words “possession” and “Commonwealth of Puerto Rico.” These terms would be redundant in the context of Federal law in which the term “possession” is synonymous with “territory,” 1 and, pursuant to section 7701(d), the Commonwealth of Puerto Rico is a territory of the United States. The proposed definition would also omit the reference to “political subdivision[s]” in Regulation E because that concept is irrelevant to the remittance transfer tax. 1 U.S. Department of the Interior, Definitions of Insular Area Political Organizations, at https://www.doi.gov/oia/islands/politicatypes#. B. Imposition of the Tax 1. Attachment of the Tax Proposed § 49.4475-1(c)(1) would provide that the remittance transfer tax attaches at the time a remittance transfer is made, see section 4475(b)(3), clarifying that this occurs at the earlier of the time the remittance transfer is initiated by the remittance transfer provider or the time the sender pays the remittance transfer provider (or its agent). The proposed rule would include an example illustrating that the fact that funds may not be disbursed to the designated recipient until a later date does not affect the time a remittance transfer is made for purposes of determining the calendar quarter in which the tax attaches and the transfer is reportable. Consistent with this proposed rule, proposed § 49.4475-1(c)(2) would clarify that the remittance transfer tax attaches to remittance transfers regardless of whether the transferred amount is disbursed to the designated recipient. The proposed rule would also clarify that, in cases in which a remittance transfer is canceled or expires and the remittance transfer provider refunds the amount of the remittance transfer to the sender, the sender may file a claim for refund of the remittance transfer tax with the IRS. Neither section 4475 nor any other section of the Code entitles the collector (unlike the sender) to refunds of the remittance transfer tax. 2. Taxable Remittance Transfers Section 4475(c) and (d) provide the scope of the remittance transfers to which the remittance transfer tax applies. Section 4475(c) provides that the remittance transfer tax applies only to remittance transfers 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. Pursuant to the grant of authority provided in section 4475(c), proposed § 49.4475-1(d)(1) would add traveler's checks to the list of taxable instruments. As a method of payment, traveler's checks are virtually indistinguishable from money orders and cashier's checks and are, therefore, a “similar physical instrument.” Section 4475(d) provides that the remittance transfer tax does not apply to any remittance transfer for which the funds being transferred are (1) withdrawn from an account held in or by a financial institution described in section 5312(a)(2)(A) through (H) of title 31 and subject to the requirements under chapter 53, subchapter II of title 31, or (2) funded with a debit card or credit card issued in the United States. Proposed § 49.4475-1(d)(1) would provide that settlement of a payment obligation under a money order, cashier's check, or traveler's check by the issuing entity to the remittance transfer provider does not constitute a “withdrawal” for purposes of section 4475(d)(1). Such funds satisfy the issuing entity's payment obligation under the instrument, rather than being withdrawn from an account of the sender with a financial institution described above. Proposed § 49.4475-1(d)(1) would not separately address the applicability of section 4475(d)(1) to personal or business checks made out to a remittance transfer provider or general-use prepaid cards, because a sender's provision of such instruments would not trigger the remittance transfer tax under proposed § 49.4475-1(d)(1) in the first instance. Similarly, proposed § 49.4475-1(d)(1) would not separately address section 4475(d)(2), which renders remittance transfers funded with a debit card or a credit card issued in the United States nontaxable, because a sender's use of such a card to pay for a remittance transfer would not trigger the tax under proposed § 49.4475-1(d)(1) in the first instance. As a result, any remittance transfer funded with a debit card or credit card would be nontaxable, regardless of the country in which such debit card or credit card was issued. Proposed § 49.4475-1(d)(2) would provide that in a case in which a remittance transfer provider (or its agent) cashes a personal or business check payable to the sender and the funds are used to fund a remittance transfer, such transaction will be treated for purposes of proposed § 49.4475-1(d)(1) as a remittance transfer for which the sender provides cash to the remittance transfer provider. The proposed regulations would treat this scenario as involving two separate transactions: a check-cashing transaction followed by a remittance transfer for which the sender provided cash to the remittance transfer provider under proposed § 49.4475-1(d)(1), regardless of the steps involved and regardless of whether the sender ever has actual possession of any resulting cash. Any remittance transfer funded as described in proposed § 49.4475-1(d)(2) would, therefore, be subject to taxation under section 4475(a) as a remittance transfer for which the sender provided cash to a remittance transfer provider. Proposed § 49.4475-1(d)(3) would define the amount subject to the remittance transfer tax, with respect to any taxable remittance transfer, as the amount that will ultimately be transferred to the designated recipient; amounts that will not be transferred to the designated recipient are not included. Thus, promotional “bonuses” that are included in the amount ultimately transferred to the designated recipient but not directly paid for by the sender would be part of the remittance transfer amount under the proposed rule. Service fees, State taxes, and charges for other goods and services that are not ultimately transferred to the designated recipient would not be part of the remittance transfer amount under the proposed rule. The remittance transfer provider's characterization of an amount would not be determinative under the proposed rule if, in fact, such amount will ultimately be transferred to the designated recipient. This proposed rule is consistent with the ordinary meaning of the term “remittance transfer,” the reference, in section 4475(d), to “the funds being transferred,” and the EFTA disclosure requirements under 12 CFR 1005.31(b)(1)(i). Proposed § 49.4475-1(d)(4) would provide that transactions engaged in for a principal purpose of avoiding the remittance transfer tax may be disregarded or recharacterized to reflect the substance of those transactions. The determination of whether a sender and remittance transfer provider or third party have engaged in a transaction or series of transactions with a principal purpose of avoiding the tax would be based on all facts and circumstances, including facts and circumstances relevant to a remittance transfer provider's or third party's pattern of conduct. The proposed rule would also provide two examples of the application of this rule in which a remittance transfer provider or their agent issues general-use prepaid cards to customers paying with cash for purposes of avoiding the remittance transfer tax. Proposed § 49.4475-1(e) would provide examples illustrating the application of these proposed definitions and rules. Proposed Applicability Date These regulations are proposed to apply to remittance transfers made in calendar quarters beginning on or after the date these regulations are published as final regulations in the Federal Register . Collectors and taxpayers may rely on these proposed regulations for remittance transfers made after December 31, 2025, and before the first calendar quarter beginning on or after the date these regulations are published as final regulations in the Federal Register , provided that collectors and taxpayers follow these proposed regulations in their entirety and in a consistent manner. Special Analyses I. Regulatory Planning and Review—Economic Analysis Executive Orders 12866 and 13563 direct agencies to assess costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, reducing costs, harmonizing rules, and promoting flexibility. The proposed regulations have been designated by the Office of Management and Budget's (OMB's) Office of Information and Regulatory Affairs (OIRA) as subject to review under Executive Order 12866 pursuant to the Memorandum of Agreement (MOA, July 4, 2025) between the Treasury Department and the Office of Management and Budget regarding review of tax regulations. OIRA has determined that the proposed rulemaking is significant and subject to review under section 3(f) of Executive Order 12866 and section 1(c) of the Memorandum of Agreement. Accordingly, the proposed regulations have been reviewed by OMB. This rule is expected to be an Executive Order 14192 regulatory action. A. Need for Regulation Section 70604 of Public Law 119-21, 139 Stat. 72 (July 4, 2025), commonly known as the One, Big, Beautiful Bill Act (OBBBA), added a new section 4475 to the Internal Revenue Code (Code). Section 4475 imposes an excise tax equal to one percent of the amount of any taxable remittance transfer. The proposed regulations are needed to clarify the scope and application of the tax. Following statutory requirements, the proposed regulations clarify that the tax would be triggered only when the sender funds the transfer with specified funding instruments. The proposed regulations also provide that the tax base would be the amount transferred to the designated recipient (rather than, say, the amount spent by the sender), and that the tax would attach at the time when a remittance transfer is made. B. The Statute and the Proposed Regulations Section 4475 of the Code imposes an excise tax equal to 1 percent of the amount of any taxable remittance transfer initiated by a domestic sender and received by a designated recipient located outside of the United States. Existing excise tax procedural regulations (ETPR) apply to the new remittance transfer tax by virtue of section 4475 being placed in chapter 36 of the Code. The ETPR provide administrative rules for remittance transfer providers regarding collection of the tax from senders, reporting requirements, and the payment of tax deposits to the Internal Revenue Service (IRS). The ETPR are operative even in the absence of the proposed regulations. The proposed regulations clarify that the ETPR apply to the remittance transfer tax but do not make any substantive procedural amendments regarding the remittance transfer tax. Section 4475(c) specifies that the tax applies only to a remittance transfer that the sender funds using cash, a money order, a cashier's check, or other similar physical instrument (as provided by the Secretary). Section 4475(d) further specifies that the tax does not apply to funds being transferred that are withdrawn from an account held in or by certain financial institutions or that are funded using a debit card or a credit card issued in the United States. Using the subsection (c) authority, the proposed regulations add traveler's checks to the list of physical instruments that would give rise to a tax liability. 2 Subject to an anti-avoidance rule in the proposed regulations, a sender's provision of other instruments, such as personal or business checks, credit and debit cards (regardless of country of issuance), and general-use prepaid cards, would not trigger the remittance transfer tax. Although checks are not included on the list of taxable funding instruments, the proposed regulations clarify that if a remittance transfer provider or its agent cashes a check payable to the sender and some, or all, of the cash is used to fund a remittance transfer, then the remittance transfer is treated as being funded with cash. In this case, it does not matter whether the sender is charged a separate check-cashing fee. 2 The proposed regulations clarify that the settlement of a money order, cashier's check, or traveler's check does not constitute a withdrawal from an account at a financial institution for purposes of section 4475(d)(1). Thus, the source of any funds used to purchase such instruments is immaterial. The proposed regulations specify that the remittance transfer tax attaches at the time when a remittance transfer is made, which occurs at the earlier of the time the remittance transfer is initiated by the remittance transfer provider or the time the sender pays the remittance transfer provider or its agent. If the transfer is canceled or expires, and the amount of the transfer is returned to the sender, the sender may be eligible to file a claim for refund with the IRS. 3 3 Section 6402 of the Code provides authority for the Secretary to credit the amount of any tax overpayment in respect of an Internal Revenue tax and, subject to certain rules, may refund any balance due, including any allowed interest, to the person who made an overpayment. Section 4475(e) provides definitions of “remittance transfer,” “remittance transfer provider,” “sender,” “credit card,” and “debit card” by cross-referencing to the Electronic Fund Transfer Act (EFTA). 4 The EFTA definitions have been further refined in regulations issued by the Consumer Financial Protection Bureau (CFPB), which are identified as “Regulation E.” 5 The proposed regulations generally adopt the Regulation E definitions, which are familiar to remittance transfer providers, but modify those rules when necessary, in view of the different purpose of implementing the remittance transfer tax. 4 The EFTA is codified as 15 U.S.C. 1693-1693r. 5 Regulation E (Electronic Fund Transfers) is found at 12 CFR part 1005. The proposed regulations adopt the definition of “remittance transfer” from Regulation E. This definition refers to an “electronic transfer of funds requested by a sender to a designated recipient that is sent by a remittance transfer provider.” It does not specify the taxable amount of a remittance transfer. Therefore, the proposed regulations provide that the remittance transfer tax would be imposed on the total amount that will be transferred to the designated recipient, including any amount provided by the sender, the remittance transfer provider, or any other person (including promotional bonuses or discounts). This tax base excludes fees paid to the remittance transfer provider, any State taxes imposed on the transfer, charges for other goods or services that are not transferred, and the remittance transfer tax itself. The statutory and Regulation E definitions of remittance transfers exclude “small-value transactions.” 6 These transfers are currently determined under Regulation E as those valued at $15 or less. The proposed regulations adopt an additional exclusion specified under Regulation E for any transfer whose primary purpose is the purchase or sale through a regulated broker-dealer or futures commission merchant of certain regulated securities or commodities. Adoption of these exclusions by the proposed regulations is intended to align the scope of a remittance transfer under the remittance transfer tax with that of a remittance transfer under EFTA. 6 See 15 U.S.C. 16930-1(g)(2)(B) and 12 CFR 1005.30(e)(2)(i). The proposed regulations refer to and generally adopt the Regulation E definitions of “sender,” “designated recipient,” and “remittance transfer provider.” Consistent with Regulation E, an entity acting as an agent on behalf of remittance transfer providers would not itself be considered a remittance transfer provider. 7 However, the proposed regulations do not adopt a Regulation E safe harbor under which a person is deemed not to be providing remittance transfers for a consumer in the normal course of its business if the person provided 500 or fewer remittance transfers in the previous and current calendar years. 8 7 See the official interpretation of the section 1005.2 definition of remittance transfer provider at 12 CFR supplement I 30(f)(1). 8 See 12 CFR 1005.30(f)(2)(i). C. Baseline The Treasury Department and the IRS have assessed the benefits and costs of the proposed regulations relative to a no-action baseline reflecting anticipated Federal tax-related behavior in the absence of these proposed regulations. D. Affected Entities and Taxpayers By providing additional specificity to needed definitions and to required rules governing the scope, timing and amount of tax, the proposed regulations affect senders of remittances, remittance transfer providers, and agents of remittance transfer providers. Banks, credit unions, and money services businesses (MSBs) make up the universe of remittance transfer providers. Since remittance transfers facilitated by financial institutions are primarily funded by non-cash instruments, the Treasury Department and the IRS expect that banks and credit unions will not be materially affected by the remittance tax and proposed regulations. According to annual data from NMLS Money Services Businesses Report, there are approximately 600 MSBs that are licensed as money transmitters. 9 Among them, more than 200 MSBs, through approximately 500,000 authorized agents, provide remittance transfers at retail locations and likely accept cash and cash-like payment instruments. The remaining 400 MSBs do not work with agents and likely provide remittance transfers solely through online platforms and accept non-physical payment instruments. In addition, the Treasury Department and the IRS estimate that approximately 3.6 million households per year have sent remittance transfers through nonbank money transfer services in recent years, among which 30 percent to 36 percent, or 1.1 million to 1.3 million households, likely used cash or cash-like instruments. 10 9 The Nationwide Multistate Licensing System (NMLS) regulates and collects data on MSBs, some of which provide remittance transfer services, i.e., money transmitters. The NMLS annual MSB reports are available at https://mortgage.nationwidelicensingsystem.org/knowledge/Products/nmls/aboutNMLS/SitePages/NMLSReports.aspx. 10 The 2020 Census enumerated 331.4 million people and 126.9 million households in the U.S. (see https://www2.census.gov/library/publications/decennial/2020/census-briefs/c2020br-10.pdf ). The FDIC National Survey of Unbanked and Underbanked Households in 2021 and 2023 finds that 2.8 percent of all surveyed households sent or received international remittances through nonbank money transfer services (see 2021 FDIC National Survey of Unbanked and Underbanked Households, at https://www.fdic.gov/analysis/household-survey/2021report.pdf, and 2023 FDIC National Survey of Unbanked and Underbanked Households, at https://www.fdic.gov/household-survey/2023-fdic-national-survey-unbanked-and-underbanked-households-report ). Based on these statistics, the Treasury Department and the IRS estimate that approximately 3.6 million households will send remittances through MSBs annually. Also see subsequent analysis in “Economic Background of Remittance Transfers” for how the Treasury Department and the IRS derived that 30 percent of remittance transfers are paid for by cash. E. Economic Effects of the Proposed Regulations The Treasury Department and the IRS analyzed the economic effects of the proposed regulations in adopting Regulation E definitions with some modifications, clarifying that the tax base of the remittance tax excludes service fees imposed by remittance transfer providers and includes promotional values being transferred, adding traveler's checks as a cash-like instrument, and clarifying the treatment of remittance transfers paid for with funds from checks cashed by a remittance transfer provider or its agent. The proposed regulations provide clarity and certainty to the implementation of the statute and promote a consistent application of the tax, while minimizing the associated compliance burdens for remittance transfer providers and agents. The Treasury Department and the IRS do not have readily available parameters and models to quantify the impact the proposed regulations may have on the type of funding instruments used to pay for remittance transfers or on the level of remittance transfers. The following sections describe in further detail the potential economic impacts of specific elements of the proposed regulations. 1. Economic Background of Remittance Transfers Annual data from NMLS Money Services Businesses Report shows that the total money transmissions to domestic and foreign destinations via MSBs grew from $1.3 trillion in 2019 to $4 trillion in 2024. Money transmitted to foreign destinations (remittance transfers) accounted for 9 to 25 percent of the total money transmissions, equaling $236 billion in 2019, growing to almost $1 trillion in 2021 and 2022, but decreasing to $365 billion in 2024. Over 2019-2024, annual remittance transfers to foreign destinations through MSBs averaged $520 billion. 11 The average individual money transfer size ranged from $290 to $740 over the same time period. 11 Money transfers to foreign destinations were highly volatile during this time period. The 2021 and 2022 annual totals are about three times as large as those in other years, likely due to a variety of factors, such as strong economic recovery post-COVID in the United States, sluggish economic recovery overseas (higher demand for remittances at the destination), and fluctuations in immigration flows. Excluding 2021 and 2022, the annual remittance transfers to foreign destinations averaged $303 billion. Table 1—Money Transfers via MSBs Total money transfer, domestic and foreign (millions of USD) Total remittance transfer (foreign only) (millions of USD) Average transfer, domestic and foreign (USD) 2019 1,310,111 235,820 290 2020 1,821,770 273,265 303 2021 3,768,884 942,221 740 2022 3,715,101 965,926 566 2023 3,770,451 339,341 370 2024 4,058,716 365,284 365 Average 3,074,172 520,310 439 Remittance transfers are subject to transaction fees charged by the remittance transfer providers, which can vary by provider, the size of the transfer, payment modes, the corridor of transaction, speed of delivery, as well as other factors. For $200 and $500 remittance transfers sent from the United States in 2025, the World Bank estimates an average transaction fee of 5.56 percent and 3.81 percent, respectively. 12 For taxable remittance transfers within that range of amounts, a 1 percent tax rate amounts to an average 18 to 26 percent increase in the total remittance cost (exclusive of the amount remitted) that senders will face. 12 This estimate is based on Remittance Prices Worldwide database analysis available in Remittance Prices Worldwide Quarterly, at https://remittanceprices.worldbank.org/sites/default/files/rpw_main_report_and_annex_q125_1_0.pdf. MSBs offer money transfers via two main channels: at retail locations and through digital platforms. Based on industry reporting and consumer surveys, the Treasury Department and the IRS estimate that the share of remittances transferred through digital platforms is likely 40 to 50 percent. Remittance transfers through digital platforms are funded by non-cash instruments such as debit cards and ACH transfers. Among remittance transfers conducted through retail locations (the remaining 50 to 60 percent), customers can fund the transfers using cash, credit and debit cards, and other payment methods accepted by the MSB. There is limited public information on the share of various payment methods used by senders for remittance transfers. The Treasury Department and the IRS therefore estimate the share of cash transfers based on three factors that are relevant for choosing cash payment at retail remittance transfer providers—the identity of the senders, the share of the unbanked population among senders, and broadband and smart phone penetration rates. The Treasury Department and the IRS expect that the population using MSB retail locations to make remittance transfers consists of unbanked senders, plus banked senders who lack internet or smartphone access. A U.S. Census Bureau working paper estimates that the vast majority of remittance transfers are sent by immigrants, i.e., foreign-born persons living in the United States. 13 In addition, 7 percent of immigrants live in an unbanked household, according to a recent study. 14 The Treasury Department and the IRS therefore estimate that about 7 percent of immigrants would send remittance transfers using cash because they have no access to alternative payment methods, such as debit cards, through accounts with financial institutions. 13 A 2010 Census study using the 2008 CPS Migration Supplement estimates that foreign-born households comprised 84 percent of the households that sent remittance transfers and accounted for 90 percent of the total amount of remittance transfers. The study is available at https://www.census.gov/content/dam/Census/library/working-papers/2010/demo/POP-twps0087.pdf. 14 “A Profile of Low-Income Immigrants in the United States” (2022), at https://www.migrationpolicy.org/sites/default/files/publications/mpi_low-income-immigrants-factsheet_final.pdf. Senders without access to smartphones or internet, even if banked, do not have access to digital payment platforms, and these senders are assumed to make up the rest of the customers who use MSB retail locations. A 2023 Pew Research Center survey finds that 95 percent of adults living in the United States have access to the internet and 90 percent have a smartphone. 15 The Treasury Department and the IRS therefore estimate that approximately 4.65 percent of the total immigrant population live in banked households but do not have internet access or smartphones (5 percent without internet access or smartphones × 93 percent in banked households). This population may find money transfers through a bank uneconomical, but do not have access to less costly, digital remittance transfer platforms. Therefore, they would likely send remittances through an MSB retail location using non-physical payments, such as a debit card. 15 See full report at https://www.pewresearch.org/wp-content/uploads/sites/20/2024/01/PI_2024.01.31_Home-Broadband-Mobile-Use_FINAL.pdf. Among the two groups who are assumed to visit MSB retail locations—unbanked immigrants and banked ones without internet or smartphone access—only the first group would likely use cash or similar instruments to pay for remittance transfers. Based on the relative share of these two groups, the Treasury Department and the IRS estimate that 60 percent of retail money transfers are funded by cash and cash-like instruments. 16 Therefore, the Treasury Department and the IRS estimate that 30 to 36 percent of remittance transfers by MSBs are funded by cash. 17 Applying these shares to the average 2019-2024 annual remittance transfer volume of $520 billion results in annual cash remittance transfers totaling about $156 billion to $187 billion. These estimates are based on data from years before the remittance transfer tax went into effect. 16 The estimated share of retail payments funded by cash is (0.07/(0.07 + 0.0465)) = 60 percent. 17 If retail transfers make up 50 to 60 percent of all transfers, and 60 percent of retail transfers are deemed to be funded by cash, then 30 percent (0.5 × 0.6) to 36 percent (0.6 × 0.6) of total remittance transfers are estimated to be funded with cash. 2. Defining Terms by Cross-Referencing and Modifying Regulation E Definitions The proposed regulations generally adopt definitions employed in Regulation E that were initially promulgated for purposes of providing consumer protections while using electronic fund transfers. Because affected remittance transfer providers are already familiar with these terms from complying with EFTA, the proposed regulations minimize compliance burdens by not introducing new terms to affected providers. Under the proposed regulations, an entity acting as an agent on behalf of remittance transfer providers would not itself be considered a remittance transfer provider. The decision to adopt this rule in the proposed regulations eases the potential compliance burden for the approximately 500,000 agents that work with MSBs. While these agents must adapt their current practices to collect the tax on remittance services, the MSBs must develop systems and internal controls in order to comply with the procedural rules of the ETPR as they relate to the tax on remittance transfers. Thus, under the proposed regulations, the compliance burden of the ETPR, such as familiarization with laws and regulations, recordkeeping, and reporting costs, falls primarily on MSBs rather than agents. Given their familiarity with EFTA and Regulation E, MSBs are better equipped to shoulder the ETPR compliance burden than their agents. MSBs can also leverage their size to absorb the fixed costs of complying with the ETPR on behalf of their network of agents. In the aggregate, this is less costly than an alternative where each agent would have to incur the full fixed costs of ETPR compliance. The definition of “remittance transfer provider” in the proposed regulations departs from Regulation E by not adopting a safe harbor under which a person is deemed not to be providing remittance transfers for a consumer in the normal course of its business if the person provided 500 or fewer remittance transfers in the previous and current calendar years. If the proposed regulations were not issued, entities that currently qualify for the Regulation E safe harbor would face uncertainty whether they would need to collect and remit the remittance transfer tax. The proposed regulations provide certainty to entities potentially affected by the Regulation E safe harbor, though the affected entities may face an increase in compliance cost relative to the case where the Regulation E safe harbor was adopted in the proposed regulations. The Treasury Department and the IRS estimate that not adopting the safe harbor provided under Regulation E would affect a limited number of remittance transfer providers and a small share of remittance transfers. In 2020, the CFPB was not aware of any MSB remittance transmitter providers with less than 500 annual transfers. Therefore, the Treasury Department and the IRS expect that very few, if any, MSBs currently qualify for the safe harbor. According to the same CFPB analysis, banks and credit unions are more likely to qualify for the safe harbor, but remittance transfers facilitated by these financial institutions are unlikely to be funded with cash and hence would not be taxable with or without the safe harbor. 18 18 See CFPB's analysis at https://www.federalregister.gov/documents/2020/06/05/2020-10278/remittance-transfers-under-the-electronic-fund-transfer-act-regulation-e#footnote-84-p34896. The safe harbor was not adopted in the proposed regulations because it is inconsistent with the operation of an efficient and effective excise tax. The safe harbor is not based on a characteristic of the remittance transfer or of the sender but on the transaction volume of the entity. Consequently, under such a safe harbor rule, identical remittance transfer transactions could be either taxable or nontaxable, depending on the vendor used. Some vendors could possibly reorganize their legal structures to avoid being subject to the remittance tax, and such restructuring would be an inefficient use of resources. In addition, with the safe harbor, entities would need to accurately predict their annual remittance transfer volume to avoid the increased tax reporting and collection costs associated with being a “remittance transfer provider.” Overall, the Treasury Department and the IRS expect the benefits of a consistent application of the remittance tax and lower economic distortions in the provision of remittance transfers from not adopting the safe harbor to outweigh the increased compliance costs for the relatively small number of affected low-volume entities. 3. Specifying the Tax Base of the Remittance Tax The proposed regulations clarify that the amount subject to the remittance tax is the amount “transferred to the designated recipient.” Specifically, the tax base excludes identified fees and taxes paid by the sender to the remittance transfer provider but not transferred to the designated recipient. However, the tax base includes any promotional bonuses transferred to the recipient, but which are not paid by the sender. The Treasury Department and the IRS considered an alternative tax base that would include amounts paid by the sender but not transferred to the designated recipient but decided against this option. These amounts include transfer fees, State taxes, and other charges imposed or collected by the remittance transfer provider. They can vary by provider, location of the sender, destination of the recipient, payment method, speed of delivery, and the amount of transfer. Under this alternative tax base, the costs and profit of the remittance transfer provider that are associated with providing the remittance transfer service would be taxed in addition to the transfer amount. Remittances of the same amount would give rise to varying amounts of tax. Including transfer fees and taxes in the base of the remittance transfer tax would increase the cost of a taxable remittance transfer to the sender. For example, if the fees to send a $100 transfer were $10, then including fees in the tax base would increase the tax due on this transaction from $1.00 to $1.10. The after-tax price of the transaction would increase from $11.00 to $11.10, an increase of 0.9 percent. This small increase in price would discourage taxable remittance transfers by a small amount, with the magnitude dependent on the elasticity of demand for remittance transfers. 19 19 Recent literature suggests that the price elasticity of remittance transaction costs is around 0.09 (see Kpodar and Imam (2024), How do transaction costs influence remittances? World Development, vol. 177, May 2024, 106537, at https://doi.org/10.1016/j.worlddev.2024.106537 ). If provider fees and taxes were included in the remittance transfer tax base, then the tax can be analytically thought of as two separate taxes. The first, an excise tax on remittances and second, a targeted sales tax on the fees (inclusive of other taxes) charged by remittance transfer providers. While the primary distortion of the combined tax would be upon the after-tax price of remittances, the sales tax component of the larger tax base would introduce other distortions on remittance transfer providers. The sales tax component may affect providers and their senders differentially depending on factors such as cost structure, specialization, and location. The broader base may also encourage tax avoidance behavior by providers, such as bundling the price of services and charging a higher price for the untaxed service and a lower price for the taxed remittance transfer compared to when the services are purchased separately. These effects are not expected to be large, given that the tax rate is only one percent, but indicate that the economic distortions from the remittance tax would increase if the base included provider fees and other taxes. Thus, the decision to apply the remittance transfer tax to only the amount transferred would result in lower economic distortions relative to a more expansive base that included provider fees and taxes. 4. Enumeration of Similar Physical Instruments That Trigger