Highlights
- A proposed section in the U.S. House of Representatives version of the One Big Beautiful Bill (OBBB) would impose a 3.5 percent excise tax on a remittance of money.
- This proposal has wide-ranging implications for everyday transactions on individuals transferring money abroad and those who facilitate the transfer.
As Republicans in the U.S. Senate now consider the reconciliation bill, they will need to consider what tax provisions contained in the One Big Beautiful Bill (OBBB), passed by the U.S. House of Representatives on May 22, 2025, to retain or modify. While much of the press has been focused on OBBB's tax proposals on energy tax credits, Section 899 and state and local tax (SALT), another tax provision tucked away in OBBB warrants discussion and debate: the proposed excise tax on remittances.
This Holland & Knight alert discusses the proposed 3.5 percent excise tax on remittances as included in OBBB, describes the mechanics of the provision and demonstrates its applicability in three examples. In sum, this proposal has wide-ranging implications for everyday transactions on individuals transferring money abroad and those who facilitate the transfer.
Proposed Section 4475
Proposed Section 4475 as included in OBBB would impose a 3.5 percent1 excise on a remittance of money. The tax applies when the sender is located in the U.S. and the recipient is located in a foreign country. The tax is paid by the sender and is collected and remitted to the IRS by the remittance transfer provider (RTP), i.e., the entity facilitating the transfer. RTPs are secondarily liable for any failures of the sender to pay the tax and are exposed to penalties for failure to properly report and remit.
There is an exception to the excise tax if the sender is a U.S. citizen or national who uses a qualified remittance transfer provider (QRTP). A QRTP is an RTP that enters into a written agreement with the U.S. Department of the Treasury and agrees to verify that the sender is a U.S. citizen or national. A QRTP is nevertheless required to report the excepted transaction to the IRS.
The excise tax explicitly incorporates the anti-conduit rules under U.S. Code Section 7701(l) by treating any multiparty arrangement involving the sender as a financing transaction. The conduit rules recharacterize a multiparty financing transaction as a transaction taking place directly between two or more parties where the Treasury secretary determines that a recharacterization is appropriate to prevent tax avoidance.
For example, assume Dick is not a U.S. citizen or national, and he asks Jane to send a wire to Dick's friend in Belgium, Renee. Dick asks Jane to act for him in order to avoid the excise tax. The Treasury secretary can use Section 7701(l) to recharacterize the transfer as a transfer from Dick to Renee, subject to the excise tax.
For senders who are exempt from the tax that was collected and paid by an RTP (as would be the case if the sender is not using a QRTP or the sender is unable to prove legal status at the time of transfer), the U.S. citizen or national can claim a tax credit when filing their annual income tax return.
Section 4475 proposes to apply to transfers made after Dec. 31, 2025.
Diplomatic Concerns
Recent Senate discussions have floated raising the remittance tax from 3.5 percent to 5 percent, citing revenue and border control priorities. However, this has prompted diplomatic concerns from countries such as Mexico, as well as criticism from financial technology (FinTech) and consumer rights groups.
Initial Observations
House Republicans provided the following rationale for the provision: "The Committee believes that the ability of non-citizens and non-nationals of the United States to send payments to individuals in other countries through the system of remittance transfers may encourage illegal immigration and lead to the overreliance of some jurisdictions on the receipt of such remittance flows."2
However, Section 4475 would go beyond transfers by illegal immigrants. The only individuals excluded from the tax would be U.S. citizens and nationals. The term U.S. citizen is clear – it is an individual who has citizenship through birth in the U.S., is born to U.S. parents, has been nationalized, or is born in the U.S. Virgin Islands, Guam or Puerto Rico.3
According to IRS Publication 501 (2024), Dependents, Standard Deduction, and Filing Information, a U.S. national is an individual who is not a U.S. citizen but owes allegiance to the U.S. For example, U.S. nationals include American Samoans and Northern Mariana Islanders who decide to not become U.S. citizens.
Any other person who initiates a remittance, whether they are in the U.S. legally or illegally, would be subject to the excise tax. For example, a foreign employee seconded to the U.S. with an H-1B visa would be subject to the excise tax, as would any foreign tourist who decides to remit funds to a foreign location. Green card holders are also not exempt from the excise tax.
As proposed, certain open questions remain. For example, it would appear that the excise tax applies to a transfer from a person's U.S. account to their foreign account, even though both accounts are owned by the same person if such person is not a U.S. citizen or national.
Another open question is whether Section 4475 violates a non-discrimination article in an applicable U.S. tax treaty. The excise tax applies to foreign persons – any U.S. citizen or national can avoid the tax through use of a QRTP or claim a credit for the excise tax on their annual income tax return. Yet, for example, Article 24 of the U.S. Model Tax Treaty (2016) provides that the U.S. cannot impose a more burdensome tax on foreign persons in the same circumstance. The non-discrimination article applies to all taxes, including excise taxes. If a violation is found, a court could strike down the excise tax under an applicable treaty.
Similarly, Section 4475 could also violate a treaty of friendship, commerce and navigation, many of which explicitly prohibit discriminatory excise taxes.
Examples
In addition to the legal questions, proposed Section 4475 raises several policy and practical questions, some of which are best illustrated by the following examples.
Example 1: Wire Transfer from Convenience Store
Section 4475 is intended to address this fact pattern. Foreign persons come to the U.S. to work and frequently send part of their income home to their families. Many individuals that use wire transfers do not have bank accounts. They may reside in locations that are not close to a bank (similar to food deserts, there are bank deserts in America) or for other reasons may be unbanked.
Many wire transfer providers have contracts with third parties, such as convenience stores, for wire transfer services. In this example, a local convenience store is open 24 hours a day, 7 days a week. It sells all forms of convenience goods and has a contract with a wire transfer company. A customer can fill out the wire transfer form (which is a contract between the wire transfer provider and the customer) and provide it to the convenience store clerk, who enters the relevant information into the terminal. The convenience store collects the funds to be transferred, plus a fee. The fee is split between the wire transfer provider and the convenience store.
The customer designates the foreign recipient and method for receiving the funds (e.g., cash, bank account, electronic wallet). This may be the customer's only interaction with the wire transfer provider.
There are several problems with Section 4475 as applied to this fact pattern – notably the need for the convenience store to now collect, verify and retain information about the sender.
First, the provision would put the convenience store on the front line to verify whether the customer is a U.S. citizen or national. That means the convenience store will need to obtain and retain such proof. The convenience store may also feel compelled to collect taxpayer identification numbers and copies of birth certificates and passports to confirm the identity and status of the sender. This information would be necessary for the wire transfer provider to avoid penalties for failure to collect the tax and report the amount.
Collecting such extensive information does not currently occur in the ordinary course of wire transfers. The customer interacting with the convenience store wants the convenience of sending small amounts of money to family abroad. Ordinarily, the customer does not need to have an account to access the wire transfer provider. In contrast, some banks require a customer to have an account in order to handle a wire transfer. Section 4475 would further disenfranchise those who are unable to obtain traditional bank accounts.
In addition, how could a convenience store verify that the customer is not fronting for another party under the anti-conduit rules? Presumably, the anti-conduit rules are designed to prevent a U.S. person from acting on behalf of another person who is not a U.S. citizen or national.
There are also confidentiality issues related to requiring the convenience store to retain possession of confidential information such as taxpayer identification numbers, passports and birth certificates.
The U.S. and the international Organization for Economic Co-operation and Development's (OECD) Common Reporting Standard currently do not impose tax reporting requirements on wire transfers.
Example 2: Transfer from Digital Wallet
Digital wallets have become commonplace. As drafted, Section 4475 likely applies to transfers from a digital wallet. For example, Michiel is a Dutch citizen who decides to visit the U.S. for vacation. While on vacation, his son, who is attending university in the Netherlands, asks Michiel for money for a weekend trip. Michiel transfers money from his digital wallet to his son's digital wallet. Is this transaction covered by Section 4475?
Michiel is in the U.S., and he initiates the transfer from the U.S. to a foreign recipient. While Michiel is legally in the U.S. on a tourist visa, he is not a U.S. citizen or national. Based on the literal language of the bill, Michiel will be subject to the 3.5 percent excise tax.
If the digital wallet company is in the U.S., it is easier for the IRS to audit and collect unpaid remittance taxes. If the digital wallet company does not have a U.S. trade, business or permanent establishment, it is unclear how the U.S. will be able to collect the tax and force reporting.
The U.S. is not part of the OECD's Common Reporting Standard, which does require due diligence in onboarding new digital wallet accounts. However, the U.S. does not require onboarding due diligence for new accounts that are under the threshold for reporting.
The IRS provided transitional guidance for 1099-K reporting. For 2025, reporting is required for more than $2,500 in gross sales from goods or services in the calendar year. The agreement between the digital wallet company and customer notes that a Taxpayer Identification Number (TIN) will be collected as the customer approaches the threshold. Section 4475 would require onboarding of every customer regardless of the value of sales. Digital wallet companies will require time to reprogram their systems and explain to customers why this information is required.
Example 3: Transfer from Brokerage Account
The concerns about Section 4475 also affect financial service companies (e.g., banks, broker/dealers) with foreign investors. Many customers in Latin America invest their money with U.S. financial services providers.
Thais resides in Brazil, and she invests her money through a U.S. brokerage account in Miami. She is a very successful investor, and she periodically transfers money from her Miami account to her bank account in Brazil. The brokerage account is in her name, not the name of an entity.
Thais will be surprised to learn she may need to pay an additional 3.5 percent excise tax on each remittance, as she is not a U.S. citizen or national. Even though she is transferring money from one hand to the other, she could be subject to Section 4475.
Conclusion
Section 4475 as included in OBBB presents several open legal questions, as well as practical and policy questions. Many think that Congress will need to make significant modifications to the proposals or it will make the U.S. unattractive for work, investment and tourism.
Footnotes
1. The House Committee on Ways and Means passed a bill that would tax remittances at 5 percent, but the tax was reduced at the House Committee on Rules.
2. House Report 119-106, at 1779.
3. See "Foreign Persons"
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
