Ep 57: What Is English For "The New Remittance Tax?"
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This conversation discusses the implications of the One Big Beautiful Bill Act, which introduces a 1% excise tax on remittance transfers starting January 1, 2026. The goal is to raise approximately $10 billion over the next decade.
We explain how this tax will affect American families sending money abroad, the collection process, and planning strategies to mitigate the impact of this new tax.
We emphasize the importance of understanding the tax's application and exploring alternative methods for sending money to avoid additional fees.
We have a new checklist to help you plan for the new tax and hopefully avoid it.
Takeaways
A 1% tax on international money transfers will take effect in 2026.
The tax applies to all remittance transfers by US citizens, residents, and foreign nationals on work visas – (Everyone)
Providers will collect the tax on behalf of the IRS.
Planning for the tax is essential to manage costs effectively.
Some transfers may be exempt, based on the institutions used or the methodology.
A checklist is available to help plan for the new tax.
Chapters
00:00 Introduction to the New Tax on Remittances
02:45 Understanding the Impact of the Tax
05:56 Planning for the New Remittance Tax
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Jane Mepham, CFP (00:00)
A 1 % tax on money transfers abroad becomes law next year, January 1st. This is from the OBBBA the one big beautiful bill act. Here's how it affects you and what you can do about it.
Manasa Nadig, EA (00:20)
Imagine this scenario, right? Maria, let's say, regularly sends $500 every month to her elderly mother who is in El Salvador and she uses Western Union to send this transfer. Now, starting January 1st of 2026, she'll find out that there is a $5 fee and it will be labeled as federal excise tax on
each one of her transfers. She might ask you, is this real? And how much will this cost me over the year? And unfortunately, it is real. The One Big Beautiful Bill Act, which was signed into law on July 4th of 2025, introduced this new one-percent excise tax on remittance transfers that will take effect on January 1st of 2026.
and millions of American families who regularly send money abroad will be affected. Right, Jane?
Jane Mepham, CFP (01:17)
Yeah. So let's, actually just talk about the basics briefly. So the basics are very simple. The tax applies to all, pretty much all remittance senders, which will be us citizens, green card holders and non-citizens alike. It's not differentiating that. And part of the reason they are doing this, they figured out they can raise a ton of money. The goal is to
raise something like 10 billion over the next decade, starting with the collections, which is going to be starting next year. And I can actually see this happening because there's a ton of money people are sending overseas. According to the World Economic Forum, in 2022 alone, migrant workers sent approximately, let's even call it close to $800 billion overseas in remittances. And so this is the money that they want to tax.
Manasa Nadig, EA (02:09)
Yes, yes. Starting January 1st, 2026, the collection process itself will be relatively straightforward, but understanding what it is will definitely help you plan better. So let's say you initiate a transfer through a provider like Western Union or MoneyGram or one of those services. They will automatically collect
the 1 % tax and it is their responsibility to remit it to the IRS. You will see that as a separate line item on the receipt that you get for the money that you've sent. Here's where it gets interesting. The tax is on the sender, which is you, but the provider is responsible for collecting it. And if somehow the tax is not collected properly,
then the provider is still liable to the IRS for giving that tax. Now, that means you can imagine they have a very strong incentive to get this right. And you can be very sure, yes, yes, I know, you can be very sure they are going to be pretty diligent about collecting the remittance tax.
Jane Mepham, CFP (03:12)
Right.
Right. Now, I know I said, when we started that all remittances are subject to these tax, but I do want to clarify a little bit because we do have some planning opportunities. Not all money transfers are subject based on how you end up sending out the money. And this is where we have some planning opportunities. So any transfers funded through certain US financial institutions, or if you use
US issued debit or credit cards, those will be exempt from the tax. But of course, there's probably going to be other fees associated with that. And that's exactly what you want to be looking into as we consider the planning opportunities. So as we were talking through this, we're like, what are some examples of what people are doing with the money? We know it's a ton of money coming down to specifics. Here's a couple of examples that we kind of came up with.
we have many transfers in an emergency. know that happens a lot. So for example, somebody sending a thousand dollars because there's some sort of an emergency overseas with the family, guess what? $10 is going to be going to this tax. Or you have business owners with cross border needs. They look looking to send something like 20 K 20,000, 200 of that is going to be going to these tax or the one that we see.
all the time where you're supporting family overseas and so you're doing regular transfers, something like 1500 every month, just be aware, $15 of this is going to be going to these tax. So in terms of what you can do about it, one, you cannot avoid it or you can based on how you do the transfer. The first thing is plan for it, right? If you know you don't have other options and you're going to continue using the ways that will be taxed,
Okay, you have a few months until beginning of the year to plan for it, sort of included in your budget. It's not the ideal situation, but that's what it is. The next option is look for the U.S. financial institutions that we've sort of alluded to or mentioned, like your bank, for example, or using your debit or credit card to send this money overseas, but be aware that they will have their own fee. So you have some time to sort of
figure out which is the best way of doing it. Just be aware of it and let's see if we can plan for it.
Manasa Nadig, EA (05:38)
Right. And, you know, just to add on to that, just one little thing at the very end is when you are doing these bank to bank or financial institution to financial institution transfers over the debit or a credit card, the exchange rates might not be very favorable, but you may be out of luck there, unfortunately. So, yes, dear listener.
In order to plan for this tax, which is going to come up January 1st of 2026, we have created a handy checklist. And this is an amazing checklist that we have. And it will help you plan for it in stages. So go to our store on our website, www.theiamcafe.com.
and we will also provide a link to this checklist in our show notes. So go grab it quickly. Thank you for listening. Bye for now.
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The speakers' views and opinions discussed in this episode should not be considered financial, tax, or legal advice. Consult your advisor for any legal, cross-border tax, and financial advice.