What is Included in the Remittance Transfer Tax?
Many people today are focused on tariffs in terms of international taxes. However, did you know about another tax on international transfers that credit unions are going to have to deal with? H.R. 1, formerly known as the "One Big Beautiful Bill Act", added section 4475 to the Internal Revenue Code. Section 4475 imposes a 1% excise tax on remittance transfers after December 31, 2025. The compliance team has seen some confusion among our members as to what types of payments/transfers this tax applies to. So, let's go over that.
Section 4475(a) levies a general 1% tax on remittance transfers. Section 4457(b) requires remittance transfer providers to collect the tax and, if they do not, to pay the tax themselves. Section 4475(d) provides an important exemption for transfers by credit unions. Subsection (d) exempts transfers made with withdrawn funds from accounts at certain financial institutions, such as credit unions, that are subject to the Bank Secrecy Act. This is key for credit unions. If the member is using funds from their account at the credit union, the tax does not apply. However, if the member is bringing in cash or another means of payment or the sender is not a member or accountholder of the credit union, the tax may still apply. Subsection (d) also exempts transfers paid for with a debit or credit card.
Section 4475(c) is where we start to see the shape of the tax start to form. Specifically, subsection (c) limits the imposition of the excise tax:
"The tax imposed under subsection (a) shall apply only to any remittance transfer 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."
Accordingly, there are three checks a credit union needs to make in order to see if the tax applies:
1. Is it a remittance transfer?
2. Is the transfer excluded under subparagraph(d)?
3. Did the sender provide cash, money orders, cashier's checks, or similar instruments?
If the transaction passes all three checks, then the tax likely applies. Now, what's a remittance transfer?
Under section 4457, the definition of remittance transfer is the same as in section 919(g) of the Electronic Fund Transfer Act (EFTA). Section 919(g) defines remittance transfer as:
"(A) means the electronic (as defined in section 106(2) of the Electronic Signatures in Global and National Commerce Act (15 U.S.C. 7006(2))) transfer of funds requested by a sender located in any State to a designated recipient that is initiated by a remittance transfer provider, whether or not the sender holds an account with the remittance transfer provider or whether or not the remittance transfer is also an electronic fund transfer, as defined in section 1693a of this title; and
(B) does not include a transfer described in subparagraph (A) in an amount that is equal to or lesser than the amount of a small-value transaction determined, by rule, to be excluded from the requirements under section 1693d(a) of this title;" (Emphasis added).
A designated recipient is defined as:
"any person located in a foreign country and identified by the sender as the authorized recipient of a remittance transfer to be made by a remittance transfer provider, except that a designated recipient shall not be deemed to be a consumer for purposes of this chapter." (Emphasis added).
In summary, a remittance transfer is an electronic transfer of funds, made by a remittance transfer provider, to a "person located in a foreign country." Please note, if a transfer is to a U.S. military base in a foreign country, the funds are still considered to be received in the United States and the transfer is not considered a remittance transfer, even though the military base is located within a foreign country. The EFTA also excludes transfers of $15 or less from the definition of remittance transfer.
For examples of remittance transfers, the commentary to Regulation E, the EFTA's implementing regulation, provides some helpful examples of what are and are not considered remittance transfers. I have included the commentary below. However, for those of you wondering about wire transfers, the commentary specifically includes consumer wire transfers as an example of a remittance transfer. This would mean that international wire transfers would be subject to the excise tax but that domestic wire transfers and international transfers of $15 or less would be excluded. For more information on this subject, America's Credit Unions members can review our FAQ on the tax in our compliance library.
Member credit unions can also feel free to contact the compliance team at compliance@americascreditunions.org for help on this or any subject.
Here are the examples from the commentary:
"3. Examples of remittance transfers.
i. Examples of remittance transfers include:
A. Transfers where the sender provides cash or another method of payment to a money transmitter or financial institution and requests that funds be sent to a specified location or account in a foreign country.
B. Consumer wire transfers, where a financial institution executes a payment order upon a sender's request to wire money from the sender's account to a designated recipient.
C. An addition of funds to a prepaid card by a participant in a prepaid card program, such as a prepaid card issuer or its agent, that is directly engaged with the sender to add these funds, where the prepaid card is sent or was previously sent by a participant in the prepaid card program to a person in a foreign country, even if a person located in a state (including a sender) retains the ability to withdraw such funds.
D. International ACH transactions sent by the sender's financial institution at the sender's request.
E. Online bill payments and other electronic transfers that a sender schedules in advance, including preauthorized remittance transfers, made by the sender's financial institution at the sender's request to a designated recipient.
ii. The term remittance transfer does not include, for example:
A. A consumer's provision of a debit, credit or prepaid card, directly to a foreign merchant as payment for goods or services because the issuer is not directly engaged with the sender to send an electronic transfer of funds to the foreign merchant when the issuer provides payment to the merchant. See comment 30(e)-2.
B. A consumer's deposit of funds to a checking or savings account located in a State, because there has not been a transfer of funds to a designated recipient. See comment 30(c)-2.ii.
C. Online bill payments and other electronic transfers that senders can schedule in advance, including preauthorized transfers, made through the Web site of a merchant located in a foreign country and via direct provision of a checking account, credit card, debit card or prepaid card number to the merchant, because the financial institution is not directly engaged with the sender to send an electronic transfer of funds to the foreign merchant when the institution provides payment to the merchant. See comment 30(e)-2."
