The US remittance tax charges 1% on cash, and nothing on cards

On 1 January 2026, the United States began taxing some of the money people send to family abroad. The rate is 1%, and it applies only when the transfer is paid for with physical money, such as cash or a money order. A transfer paid from a bank account or with a US-issued card pays nothing. Ten months on, the largest flows it touches have kept growing.

What the law says

The tax comes from section 70604 of Public Law 119-21, the budget law known as the One Big Beautiful Bill Act, which was signed on 4 July 2025 [1]. That section added a new section 4475 to the Internal Revenue Code. It charges 1% of the amount of a “remittance transfer,” meaning an electronic transfer from a sender in the United States to a recipient in another country [1].

The tax applies only when the sender hands the transfer company cash, a money order, a cashier’s check or a similar physical instrument, with the Treasury deciding what counts as “similar” [1]. Two kinds of transfer are exempt: money withdrawn from an account at a US financial institution covered by anti-money-laundering rules (banks, credit unions and registered brokers, for example), and transfers funded with a debit or credit card issued in the United States [1].

Proposed rules published on 13 April 2026 add detail. Personal checks and general-use prepaid cards do not trigger the tax. But there is an anti-avoidance rule: a sender who loads cash onto a prepaid card and immediately sends it abroad may be treated as having sent cash [1].

So $500 handed over in notes at a transfer counter carries $5 in tax; the same $500 sent from a debit card carries none.

Who pays and who collects

The sender owes the tax. The transfer company collects it at the time of the transfer, deposits it twice a month and reports it each quarter on Form 720, the federal excise tax return. If the company fails to collect from the sender, the company owes the tax itself [2]. The first deposits were due on 29 January 2026 [2]. The Treasury estimates that about 600 licensed money transmitters are affected [1].

Because the rules arrived late, the IRS has eased penalties. Notice 2025-55, issued in October 2025, offered limited relief for incorrect deposits in the first three quarters of 2026 [2]. Notice 2026-52 extended that relief until final regulations take effect [3]. The comment period on the proposed rules closed on 12 June 2026 [2].

How 5% became 1%

The tax shrank as the bill moved through Congress. The first version set it at 5%, and an amendment cut it to 3.5% [4]. The House passed the bill on 22 May 2025 with a 3.5% rate that applied to most transfers, while exempting US citizens who used qualified providers that verified their status [5].

The Senate Finance Committee’s draft of 16 June 2025 changed the design. It dropped the citizenship test and limited the tax to transfers paid for in cash and similar instruments, with the bank-account and card exemptions that are now law [6]. By the time the Senate passed its version on 1 July 2025, the rate was 1%. Congress’s Joint Committee on Taxation estimated it would raise about $9.97 billion between 2025 and 2034 [7].

A tax on cash transfers works mostly as a tax on people who do not have a bank account or card.

What the first data show

Mexico. The Bank of Mexico reported $14.46 billion in remittances in the first quarter of 2026, up 1.4% from a year earlier and the highest first-quarter total on record (the previous highs were $14.25 billion in 2025 and $14.11 billion in 2024) [8][19]. March alone brought $5.39 billion, up 4.9% [8]. From January to August, inflows reached $41.80 billion, 2.2% more than a year before. That followed a 3.9% fall in 2025 [9]. The number of transfers fell 2.2% over the eight months, but the average transfer grew 4.5% [9].

The central bank classifies 99.1% of this year’s inflows as electronic transfers. Cash carried in person and goods made up 0.7%, and money orders 0.2% [9]. These categories show how money arrives in Mexico, not how the sender paid in the United States. A transfer paid for in cash at a US counter still counts as electronic, so the Mexican figures cannot show how much money was actually taxed.

Central America. Inflows are still growing, but more slowly. The Inter-American Dialogue, a Washington research group using central bank data, estimates 2026 growth of 7.0% for Guatemala, 10.5% for Honduras and 4.8% for El Salvador. In 2025 the figures were 18.7%, 25.3% and 17.7% [10].

Pakistan. The United States is Pakistan’s fourth-largest source of remittances, behind Saudi Arabia, the United Arab Emirates and the United Kingdom. The US corridor brought $359.3 million in March 2026 [11], $296.8 million in June [12] and $305.9 million in September [13]. Total remittances reached $41.6 billion in the fiscal year to June 2026, up 8.6% [12], and rose another 14.0% to $10.9 billion in July–September 2026 [13]. Because the US supplies less than a tenth of the total, any effect of the tax is hard to see in Pakistan’s national figures.

We have not found 2026 data from India’s central bank detailed enough to compare.

Why flows did not fall

There are several explanations, and none of them is proven on its own.

• A narrow base. Most senders can avoid the tax. BBVA Research estimates that 84% of Mexican migrants in the United States have bank accounts [14].
• A shift to digital channels. The Inter-American Dialogue reports that digitally started transfers rose to more than 61% of the total in 2026, up from 55% in 2025. It says the tax “led some remitters to opt for a different sending method” [10].
• Front-loading. BBVA Research suggested the tax may have pushed some transfers into November and December 2025, ahead of the start date [14]. The slowdown in early 2026 fits this idea, but it is also a comparison with an unusually strong 2025.
• Fear of deportation. Jesús González Cervantes of the Center for Latin American Monetary Studies said fear of being reported may be encouraging undocumented migrants to send savings home [15].
• Refunds. Mexico’s state lender Finabien said it would refund the 1% on cash transfers of up to $400 a month sent through its card [16].

The arguments

For. Heritage Action, the advocacy arm linked to the Heritage Foundation, described the tax as a way of discouraging “illegal immigration and unauthorized employment.” It argues that billions of dollars leave the country without benefiting the US economy [17]. Supporters also point to the estimated $10 billion in revenue over ten years [7].

Against. Analysts at the Tax Foundation argued that remittances are easy to move out of reach of the tax, that compliance costs are high and that tax policy is a poor tool for immigration goals [4]. Manuel Orozco of the Inter-American Dialogue warns that slower remittance growth will hurt Central American economies, where these flows exceed a quarter of output [10]. Forbes México reported that Mexico’s government considers the tax a breach of the 1994 US–Mexico treaty on double taxation [18].

What to watch

• Final Treasury regulations: these will apply from the first calendar quarter after they are published, and the IRS penalty relief ends then [1][3].
• Early November and early December 2026: Banco de México’s September and October figures, published on the first banking day of each month.
• November 2026: the State Bank of Pakistan’s October figures, including the US corridor.
• 2027: the Inter-American Dialogue expects remittance growth in Latin America and the Caribbean to slow to about 2% [10].