Read this before sending dollars abroad from the United States
A new U.S. federal law has introduced a 1% excise tax on certain money transfers sent from the United States to other countries. This is a crucial update for anyone who sends money internationally, especially those in the U.S. supporting family and friends abroad.
Here is a straightforward breakdown from your team at KKCA on how this change might affect you.
When Did the Tax Start?
The new 1% U.S. remittance tax became effective on January 1, 2026.
If you have sent money since the start of this year, the tax may have already been applied to your transaction, depending on how you funded the transfer.
How Does the 1% Tax Work?
The tax is straightforward: it is 1% of the total amount you are sending.
If you send $500, the tax is $5. If you send $2,000, the tax is $20.
The sender in the U.S. is responsible for paying this tax at the time of the transaction. The financial institution or money transfer service provider you use (banks, Western Union, etc.) collects this tax and remits it to the IRS.
The Most Important Detail: Funding Method Matters
This new law has a very specific trigger. The 1% tax only applies to transfers funded using three specific methods:
- Cash
- Money Orders
- Cashier’s Checks
If you walk into a branch and hand over physical cash to wire money, or pay with a money order, you will be subject to the 1% tax.
How to Avoid the 1% Tax
For most KKCA clients who use modern, digital methods, this tax can be easily avoided.
Transfers funded using the following methods are EXEMPT from the new 1% tax:
- U.S.-issued bank account (ACH transfers)
- Debit card
- Credit card
If you link your bank account to a transfer service, or pay online using your debit or credit card, you will not pay the 1% excise tax.
Other Important Considerations for International Transfers
While the new 1% tax is the latest update, a few other federal rules remain in place:
- IRS Reporting Rule ($10,000+): Separately from the 1% tax, financial institutions are still legally required to report any single international money transfer of $10,000 or more to the IRS under anti-money laundering regulations. This is a reporting requirement, not an automatic tax.
- Gift Tax: If the total value of gifts you send to a single person exceeds the annual exclusion amount in a calendar year ($19,000 for 2026), you are technically required to file a Form 709 gift tax return, though you are unlikely to owe any tax unless you exceed the very high lifetime exemption ($13.61 million in 2024).
Key Takeaways
The new U.S. remittance tax is designed to apply to non-digital forms of payment. By simply using a bank account or debit card to fund your transfers, you can continue sending money to your loved ones without this additional 1% fee.
Looking for personalized tax services about your specific tax situation, please contact us. We are here to help you with your specific tax matters.
Disclaimer
This blog is intended for informational purposes only and does not constitute legal or tax advice. Please consult a qualified U.S. CPA or tax attorney for guidance specific to your situation.