COMMENT CALL: The U.S. Treasury has released proposed rules on the 1% excise tax on certain remittance transfers, as required by H.R. 1, formerly known as the One Big Beautiful Bill Act.
Background
In an August 2025 Compliance Courier, The League summarized the remittance transfer tax provisions in H.R. 1. Under that law, consumers who send money outside of the U.S. – whether they are U.S. citizens, green card holders, and non-citizens – must pay a 1% tax on many of those transfers made on or after after Jan. 1, 2026.
The H.R. 1 definition of “remittance transfer” may capture many cross-border transfers that credit unions do not normally think of as “remittances,” including:
- Transfers conducted through a money transmitter or financial institution;
- Wire transfers conducted by a financial institution;
- Addition of funds to a prepaid card by a participant in a prepaid card program, even if the sender can withdraw funds added;
- International Automated Clearing House (“ACH”) transactions; and
- Online bill payments and other electronic transfers scheduled in advance.
However, H.R. 1 included two key exceptions:
- The tax only applies to remittance transfers made by cash, money orders, cashier’s checks, or other similar physical instruments.
- H.R. 1 exempts transfers made from accounts at banks, credit unions, and other financial institutions or funded by a debit or credit card issued in the U.S.
Credit unions in “safe harbor” would still have to collect the tax
One significant point in the proposal would answer a question that several credit unions have asked The League. It has to do with Reg. E’s “normal course of business” safe harbor. Under Reg. E §1005.30(f)(2), if a “person” (including a credit union) provides 500 or fewer remittance transfers in both the current and previous calendar year, they are not considered a remittance transfer provider for Reg. E purposes.
But it has been unclear whether credit unions that qualify for that safe harbor would still have to collect the excise tax from people who send out otherwise taxable remittance transfers. Unfortunately, the proposed rule does not adopt this exemption. As a result, credit unions and others that provide fewer than 500 remittance transfers and qualify for the Reg. E safe harbor will still be required to collect the excise tax.
Regardless, since the tax only applies to remittance transfers made by cash and other physical instruments, and since transfers made from credit union accounts are exempt, this aspect of the proposal may have little real impact. In the proposal, the Treasury wrote: “In 2020, the CFPB was not aware of any [money service business (MSB)] remittance transmitter providers with less than 500 annual transfers. Therefore, the Treasury Department and the IRS expect that very few, if any, MSBs currently qualify for the safe harbor. According to the same CFPB analysis, banks and credit unions are more likely to qualify for the safe harbor, but remittance transfers facilitated by these financial institutions are unlikely to be funded with cash and hence would not be taxable with or without the safe harbor.”
Other Reg. E exemptions
The proposed rule discusses two other Reg. E remittance transfer exemptions.
- First is the small value transaction exemption under Reg. E §1005.31(c)(1)(i). It provides an exemption for small value transactions of $15.00 or less. The proposed rule adopts this exemption and excludes remittance transfers of $15 or less from the excise tax.
- Second is Reg. E’s exemption of securities and commodities transfers. The proposed rule adopts this exemption and excludes from taxation any “transfer that is excluded from the definition of electronic fund transfer under 12 CFR 1005.3(c)(4).”
Cashing checks
H.R. 1 specifies that the excise tax only applies to remittance transfers for which the sender provides cash, money orders, cashier’s checks, or other similar physical instruments to the remittance transfer provider. The proposed rule also includes traveler’s checks.
Beyond traveler’s checks, the rule goes a step further and provides that: “in a case in which a remittance transfer provider (or its agent) cashes a personal or business check payable to the sender and the funds are used to fund a remittance transfer, such transaction will be treated … as a remittance transfer for which the sender provides cash to the remittance transfer provider.”
This means that:
- If a member walks into a credit union with a check payable to themselves and uses that check to pay for a remittance transfer, the transfer is taxable; but
- If the member makes the check payable to the credit union, as the transfer provider, that transfer is not taxable.
Transactions for tax-avoidance purposes
Under the proposed rule, “[i]f a sender and remittance transfer provider (or its agent) or third party engage in a transaction (or series of transactions) with a principal purpose of avoiding the remittance transfer tax, the Secretary may disregard or recharacterize the transaction (or series of transactions) in accordance with its substance.” This means that if a remittance transfer provider or sender structures a transaction to avoid the excise tax, the IRS can come after them. When determining whether a transaction was made to avoid the tax, the IRS will review the relevant facts and circumstances, such as the pattern of conduct for both parties, the timing of the transactions involved, and the amount of the transaction.
The proposed rule provides an example where a sender purchases a pre-paid debit card from a remittance transfer provider and immediately uses that pre-paid debit card to send a remittance transfer with the provider.
Because of this, credit unions may want to be careful regarding the exemption for funding transfers via a credit union account. While the law does not provide for a specific length of time that funds need to be in an account for the exemption to apply, using the prepaid debit card example, it looks like the IRS will look unfavorably on deposits into an account followed immediately by a remittance transfer.
New tax form & payment deadlines
The remittance transfer tax will be reported on Form 720, Quarterly Federal Excise Tax Return, by the remittance transfer provider as the collector.
Quarterly remittances of the excise tax are required, but semi-monthly deposits are also required. The IRS wrote: “Collectors of the remittance transfer tax are also required to make semimonthly deposits of tax …. Those deposits are payments toward an amount that is not fully determined until filing, and are distinguishable from the quarterly remittances of tax …. [A] semimonthly period is the first 15 days of a calendar month or the portion of a calendar month following the 15th day of the month.”
In Notice 2025-55, 2025-43 I.R.B. 625 (October 20, 2025), the Treasury Department and the IRS provided relief from failure to deposit penalties in connection with the remittance transfer tax for the first three calendar quarters of 2026.
Note: Portions of this Courier are based on material from America’s Credit Unions.
Make your voice heard
The League will consider submitting comments on this proposal, depending on the feedback credit unions provide. If you would like to share your thoughts on this proposal, please email Paul Guttormsson by June 5, so that our comment letter (which is due June 12) can reflect your positions. We will not identify your credit union by name in our letter.
Compliance Roundtable – September 16 (In-Person)
Join members of The League’s compliance team as they lead a discussion on the latest changes in regulations and need to know information to keep your credit union in compliance. You can find more information or register on our website.