Key Takeaways
- New 1% federal excise tax under Section 4475 beginning January 1, 2026
- Applies only to transfers funded with “physical instruments”
- Remittance transfer providers are responsible for collecting tax at the POS
- IRS procedures require semi-monthly tax deposits despite quarterly filings
- Penalty relief for Q1 – Q3 2026 is available for those eligible
Cross-border payments are undergoing a seismic shift with the introduction of the new excise tax on remittance transfers. Enacted under P.L. 119-21 — also known as the "One Big Beautiful Bill Act" (OBBBA) — and codified as Internal Revenue Code (IRC) Section 4475, this provision imposes a 1% excise tax on certain outbound transfers made on or after January 1, 2026.
For money services businesses (MSBs), banks, fintech companies, and other institutions acting as remittance transfer providers (RTPs), this represents a fundamental operational challenge requiring updates to point-of-sale (POS) systems, agent network contracts, treasury management functions and tax reporting structures. Further, the statute leaves many compliance-related questions unanswered, deferring to the U.S. Department of the Treasury to write regulations.
While proposed regulations are currently under White House review, RTPs face significant uncertainty in their absence, while the first deposit towards payment of the tax was due this past January 29. Fortunately, Internal Revenue Service (IRS) Notice 2025-55 provides penalty relief if certain conditions are met.
Background and Scope of Section 4475
The OBBBA added Section 4475 to Chapter 36 of the IRC, a chapter historically reserved for "certain other excise taxes." Section 4475 does not create a new definition for "remittance transfer." Instead, it incorporates by reference the definition found in Section 919(g) of the Electronic Fund Transfer Act (EFTA).
Under this definition, a remittance transfer generally includes an electronic transfer of funds requested by a sender located in the United States to a designated recipient in a foreign country. This includes transfers made by a RTP, whether or not the sender holds an account with the provider.
However, the excise tax does not apply to all remittance transfers. The statute introduces a critical narrowing filter based on the funding source at initiation; Section 4475(c) explicitly limits the tax to remittance transfers where the sender provides:
- Cash
- A money order
- A cashier’s check or
- Any "similar physical instrument"
The tax on remittance transfers is imposed on the sender, but RTPs generally must collect it during the transaction. RTPs are secondarily liable for any tax not paid by the sender at the time of the transfer. Though the tax as provided by statute must be remitted quarterly (and reported by the RTP on a quarterly excise tax return), existing excise tax regulations require semi-monthly deposits, a requirement parroted by Notice 2025-55.
IRS Notice 2025-55: Penalty Relief and Safe Harbors
In October of 2025, the IRS issued Notice 2025-55, which provides penalty relief in the absence of the aforementioned regulations.
Scope of Relief
The Notice provides relief from failure-to-deposit penalties under IRC Section 6656 for the first, second and third calendar quarters of 2026 (Q1 – Q3 2026) if a provider fails to deposit the exact correct amount on the semi-monthly deposit due date. To qualify, the provider must meet two strict conditions:
- Timely Deposits: The RTP must make deposits on the required semi-monthly due dates. Even if the amount is miscalculated, a deposit must be made.
- Full True-up: Any underpayment of the tax for the quarter must be paid in full by the due date of the Form 720 for that quarter.
Next Steps
Taxpayers and practitioners are hopeful that the Treasury regulations currently under White House review answer several burning questions surrounding the tax, providing the clarity needed for sound compliance.
Your Guide Forward
Expect further guidance from Cherry Bekaert upon their issuance. In the meantime, if you have any questions or need assistance, including how to proceed if you believe you were required to make the first semi-monthly deposit, but did not, our Tax Services advisors can help.
