On May 22, 2025, the U.S. House of Representatives passed H.R. 1, the “One Big Beautiful Bill Act,” which, among other provisions, proposes the implementation of a federal remittance tax. This measure would impose a 3.5% tax on international money transfers initiated by individuals who are neither U.S. citizens nor U.S. nationals. The stated objectives of the proposal are to regulate outbound financial flows and to increase federal revenue through enhanced oversight of personal international transfers.
This article summarizes the core elements of the proposed remittance tax, analyzes its potential legal and compliance implications, and outlines the steps that individuals and financial service providers should consider in preparation for possible enactment.
Scope and Applicability
The proposed tax would apply specifically to:
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- Senders: Individuals (not entities) initiating a remittance transfer. Business-related or institutional transactions fall outside the scope of the tax.
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- Recipients: Persons or entities receiving funds abroad through a remittance transfer provider. Transfers without a designated recipient would not trigger tax liability.
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Crucially, U.S. citizens and U.S. nationals are expressly excluded from the tax. In the event that such individuals are taxed in error, they may claim a refundable tax credit equal to the remittance tax paid during the taxable year.
What is a “Remittance Transfer”?
Under the proposed legislation, a “remittance transfer” is broadly defined to include most types of electronic outbound financial transactions, including:
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- Wire transfers;
- Money orders; and
- Any other form of electronic fund transfer used to send money internationally.
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However, the following are exempt:
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- Transfers of $15 or less;
- Transactions expressly excluded from the definition of “electronic fund transfer” under federal regulations (e.g., certain securities or commodities transfers).
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Obligations for Remittance Transfer Providers
The legislation introduces a regulatory framework with significant compliance obligations for remittance service providers, including:
- Tax Collection and Reporting: Providers must withhold the 3.5% remittance tax at the point of transaction and remit the collected funds to the U.S. Treasury on a quarterly basis. Robust reporting mechanisms will be required to ensure accurate collection and auditability.
- Safe Harbor for Small-Scale Providers: Providers that process 500 or fewer remittance transfers annually will be exempt from the tax collection and remittance requirements. This safe harbor provision is designed to minimize compliance burdens on small or occasional remittance facilitators.
- Verification of Citizenship or Nationality: Only “qualified remittance transfer providers” — i.e., those who enter into an agreement with the U.S. Treasury — will be authorized to verify a sender’s U.S. citizenship or nationality status. Providers must implement procedures to ensure the accuracy of such determinations to avoid liability for improper collections.
Tax Credit for U.S. Citizens and Nationals
To mitigate unintended tax burdens, the legislation provides a refundable tax credit for U.S. citizens and nationals equal to the amount of remittance tax paid during the year. This credit may be used to offset existing federal income tax liability or claimed as a refund. Taxpayers will be required to provide documentation of remittance transactions and the corresponding taxes paid.
Legislative Status and Outlook
H.R. 1 has passed the House of Representatives and is currently under consideration by the Senate. Possible outcomes include:
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- Passage in its current form;
- Amendment and referral to a conference committee; or
- Rejection or indefinite postponement.
If ultimately signed into law by the President, the remittance tax provisions are scheduled to take effect on January 1, 2026.
Legal and Practical Implications
The proposed remittance tax represents a substantial shift in U.S. tax policy with far-reaching implications for both individuals and financial institutions involved in cross-border transactions. Among the anticipated effects:
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- Increased transaction costs for non-citizen individuals sending funds abroad;
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- Expanded compliance obligations for remittance providers, including potential exposure to civil penalties for failure to verify sender status or report accurately;
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- Administrative burdens for U.S. citizens and nationals in documenting and claiming tax credits.
Given the complexity of the proposed framework and its potential impact, we strongly recommend that affected parties proactively consult with experienced legal and tax counsel.
Juarez Hernandez Tax Law provides strategic legal guidance in navigating international tax compliance, cross-border financial reporting, and related litigation. For further assistance on how the proposed remittance tax may affect your individual or business circumstances, please contact our office.