Does the 1% Remittance Tax Apply to Card-Funded Transfers?

Since January 1, 2026, a federal excise tax of 1% has applied to some international money transfers sent from the United States. Whether a transfer owes it depends on one thing: how the sender pays for it. A transfer paid for with cash or a money order is taxed. A transfer paid for with a debit card or credit card issued in the United States is not.

For a money transmitter or remittance business, that makes card acceptance more than a convenience. It is now the difference between a taxed and an untaxed transfer for the same customer and the same amount. Card funding brings its own costs, though, and some of them land on the customer. This guide covers what the tax applies to, the two arrangements the IRS has said it will treat as cash, what a card-funded transfer costs the sender, and what Visa's rules and an underwriter will expect from you. It reflects the statute, the IRS proposed regulations published on April 13, 2026, and IRS notices as they stood in mid-October 2026. It is not tax advice.

What the remittance tax covers

The tax is in section 4475 of the Internal Revenue Code, added by the One Big Beautiful Bill Act, which was signed on July 4, 2025. It is 1% of the amount of a taxable remittance transfer made after December 31, 2025. The sender pays it. The remittance transfer provider collects it and pays it over to the IRS, and if the provider does not collect it at the time of the transfer, the provider owes it.

The statute borrows its definitions from the Electronic Fund Transfer Act and the CFPB's Regulation E, which remittance providers already work under. A remittance transfer is an electronic transfer of funds that a consumer in a US state, territory or the District of Columbia asks a provider to send, primarily for personal, family or household purposes, to a recipient at a location outside the United States. Transfers of $15 or less are excluded, as under Regulation E.

Under the proposed regulations, the taxable amount is what the recipient will receive. That includes any promotional bonus the provider adds to the transfer, and it excludes the provider's own fees, state taxes and charges for anything that is not passed on to the recipient.

Which funding methods trigger the tax

Section 4475(c) applies the tax only where the sender gives the provider cash, a money order, a cashier's check or a similar physical instrument. Section 4475(d) then exempts transfers funded by a withdrawal from an account at a bank or other financial institution subject to the Bank Secrecy Act's reporting rules, and transfers funded with a debit card or credit card issued in the United States.

The proposed regulations make the list concrete:

• Taxable: cash, money orders and cashier's checks, which are in the statute, and traveler's checks, which the proposed regulations add.
• Not taxable: transfers drawn from an account at a covered financial institution and transfers paid with a US-issued debit or credit card, which the statute exempts.
• Also not taxable under the proposed regulations: debit and credit cards issued outside the United States, ACH transfers, personal or business checks used as payment, and general-use prepaid cards.

These rules are still proposed. The comment period closed on June 12, 2026. Until final regulations apply, Treasury and the IRS say providers and senders may rely on the proposed rules for transfers made after December 31, 2025, as long as they follow them in their entirety and consistently.

Two arrangements the IRS treats as cash

Because the line between taxed and untaxed is the funding method, the obvious question is how far a provider can steer a cash customer onto something else. The proposed regulations answer it with two rules.

Cashing a check to fund the transfer

A personal or business check given to the provider as payment does not trigger the tax. But if the provider or its agent cashes a check made out to the sender and the money funds a remittance, the proposed regulations treat that as two transactions: a check cashing, then a transfer funded with cash. The transfer is taxed, whether or not the sender ever holds the cash and whether or not a separate check-cashing fee is charged.

Selling a prepaid card for cash

General-use prepaid cards are not a taxable funding method, but the proposed regulations include an anti-avoidance rule. Transactions entered into with a principal purpose of avoiding the tax can be disregarded or recharacterized, judged on the facts, including the provider's pattern of conduct, the timing and amounts involved and the relationship between the parties. The regulations give the example of a sender who hands over $500 in cash for a prepaid card loaded with $500 and immediately uses it to pay for a $500 transfer. That series can be treated as a cash-funded transfer, and the result is the same if the sender passes the card to a relative who sends the money. If the tax was not collected, it becomes the provider's liability.

The practical reading for an operator is that card funding has to be a real card payment by the sender. A process built to convert cash at the counter into something that looks like a card payment is the arrangement the rule describes.

Collecting, depositing and disclosing the tax

The tax is reported on Form 720, the Quarterly Federal Excise Tax Return, under IRS No. 155. Because the provider files Form 720, it must also make semimonthly deposits of the tax. The IRS's Form 720 instructions put the first semimonthly deposit due on January 29, 2026.

The IRS has given providers some room while the rules settle. Notice 2025-55 provided relief from the failure-to-deposit penalty for the first three quarters of 2026: a provider is treated as having reasonable cause if it makes timely deposits, even if the amounts are computed incorrectly, and pays any underpayment for the quarter in full by the Form 720 due date for that quarter. On September 24, 2026, Notice 2026-52 extended the same relief to semimonthly periods ending before final regulations take effect. The relief covers deposit amounts. It does not remove the obligation to deposit on time.

Two other details catch providers out:

• Regulation E's safe harbor for providers that make 500 or fewer remittance transfers a year does not carry over. The proposed regulations say it does not apply to the tax, so a low-volume business that falls outside Regulation E's remittance rules can still have to collect the tax.
• The pre-payment disclosure under Regulation E must show any fees imposed and any taxes collected on the transfer by the provider. On a cash-funded transfer, the remittance tax is one of those taxes.

Regulation E's other remittance rules continue to apply alongside the tax. Among them, a sender may cancel a transfer within 30 minutes of paying, provided the funds have not been picked up or deposited, and the provider must refund within three business days of the request.

What a card-funded transfer costs the sender

The tax saving is 1% of the transfer amount: $5 on a $500 transfer. Whether card funding saves the sender money depends on which card.

Money transfer merchants are classified under merchant category code 4829, and many card issuers treat a credit card payment to a money transmitter as a cash advance, not a purchase. Capital One's consumer card agreement defines a cash advance as a loan in cash or things it considers cash equivalents, including wire transfers and money orders, and prices it at $10 or 3% of the amount, whichever is greater, with interest from the transaction date. Citi's card agreement lists wire transfers and person-to-person money transfers as examples of cash advances and says there is no grace period on them. On Capital One's terms, a $500 transfer paid with a credit card would cost the sender a $15 cash advance fee plus interest, three times the $5 tax it avoids.

A debit card draws on the sender's bank account rather than a credit line, so it avoids the tax without triggering credit card cash advance pricing. That matters for your disputes as well as your pricing. A customer who chose a credit card to avoid a 1% tax and then finds a cash advance fee and interest on their statement has a reason to call their bank. Telling credit card payers before they pay that their card issuer may treat the payment as a cash advance is cheap insurance.

What Visa's rules say about money transfer merchants

Taking cards also brings a money transmitter under the card network rules, and Visa's rules single out merchant category code 4829 in several places. The Visa Core Rules and Visa Product and Service Rules dated April 18, 2026 include two points worth knowing before you add card funding:

• In the US, the liability shift that normally comes with 3-D Secure does not protect money transfer merchants. Visa requires acquirers to tell merchants under MCC 4829 that their secure ecommerce transactions are not eligible for protection from Dispute Condition 10.4, Other Fraud – Card-Absent Environment, and the dispute applies to those transactions whatever the ecommerce indicator says. A fraudulent card-funded transfer that has already been paid out abroad can end up as the merchant's loss.
• Visa groups MCC 4829 with cash disbursement, gambling and cryptocurrency codes in several rules. For example, issuers of its installment credential product must not approve transactions under it.

Fraud controls therefore carry more weight for a money transmitter than for most card-not-present merchants. Holding first transfers from new senders, limiting new accounts, matching the cardholder to the sender, and using Regulation E's 30-minute cancellation window to review risky transfers before release all reduce the losses 3-D Secure will not cover.

What an underwriter will ask a money transmitter

Money transfer is a regulated business before it is a card-processing one, and an acquirer will want to see the regulatory file first. Expect to be asked for:

• FinCEN money services business registration. FinCEN requires an MSB to register on FinCEN Form 107 within 180 days of being established and to renew every two years.
• State money transmitter licenses for the states where you operate, where those states require them.
• Your anti-money-laundering and know-your-customer program, including how you verify senders and screen recipients.
• Your agent list, if you send through agent locations, and how agents are monitored.
• Your funding mix: how much volume arrives as cash, card, ACH and bank transfer, and how you expect card volume to change.
• Sample Regulation E disclosures and receipts, and how the remittance tax is calculated, shown and collected on cash-funded transfers.
• Your fraud controls for card-funded transfers, and your dispute history if you already take cards.

A checklist before you add or expand card funding

1. Confirm which of your funding methods are taxable under the proposed regulations, and that your system applies the tax only to those.
2. Check that cash-funded check cashing and prepaid card sales are not feeding transfers in a way the anti-avoidance rule describes.
3. Make sure semimonthly deposits are going in on time; the penalty relief depends on it.
4. Update your Regulation E pre-payment disclosure and receipt to show the tax on transfers that owe it.
5. Tell credit card payers before payment that their issuer may treat the transaction as a cash advance, and make debit the default card option.
6. Plan fraud controls on the basis that 3-D Secure will not shift liability for MCC 4829 transactions.
7. Have your registration, licenses and AML program ready before you apply for a merchant account.

The remittance tax gives money transmitters a straightforward reason to move customers from cash to cards, and the card networks give them good reasons to do it carefully. PayKings works with money transfer and remittance businesses and can match your file with acquiring banks that underwrite the category. How the tax applies to your transfers is a question for your tax adviser, and the final regulations may change the details discussed here.