OBBB Makes Changes for Remittance Transfer Providers

The massive tax and budget bill, also known as the OBBB, signed into law on July 4, 2025, ushers in sweeping changes in the U.S. tax regime. Among its more inconspicuous provisions is a 1% excise tax on outbound remittance transfers under new Section 4475. Set to take effect for payments made beginning on or after Jan. 1, 2026, this provision will affect operational models, compliance programs, and customer experience for RTPs, as defined in 15 U.S. Code Section 1693o-1 (Section 919(g) of the Electronic Fund Transfer Act). Although the final version of the legislation includes a lower tax percentage than the initially proposed 3.5%, the remittance tax still might have a meaningful impact on the payments industry, so it’s important to understand the applicable ramifications.

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As payments companies and financial services leaders digest the implications of this law, understanding its scope and obligations is critical for risk mitigation and competitive advantage.

When the remittance tax applies

The remittance tax is imposed on the sender of a remittance transfer. For the definition of remittance transfer, Section 4475 cross-references the definition in 15 U.S. Code Section 1693o-1(g). Under that section, remittance transfer generally means an electronic transfer of funds requested by a sender located in the U.S. to a designated recipient that is initiated by a remittance transfer provider, regardless of whether the sender holds an account with the RTP or whether the remittance transfer is also an electronic fund transfer. The sender of a payment subject to the tax is required to pay the tax.

The remittance tax applies only to remittance transfers for which the sender provides cash, a money order, a cashier’s check, or any other similar physical instrument (as determined by the secretary of the treasury) to the RTP.

The remittance tax does not apply to a remittance transfer if the funds being transferred are:

• Withdrawn from an account held in or by a financial institution described in subparagraphs (A) through (H) of 31 U.S. Code Section 5312(a)(2) (generally U.S. banks and brokers)
• Subject to the anti-money laundering rules under subchapter II of Chapter 53 of Title 31 of the U.S. Code
• Funded with a debit card or a credit card that is issued in the United States

The statute is silent regarding the treatment of digital asset remittances. For instance, it is unclear whether a transfer of crypto or tokenized assets from a U.S.-based wallet to an offshore account is a remittance transfer for purposes of Section 4475.

A new withholding obligation

While the sender of a remittance is liable for the tax, Section 4475 creates a withholding and payment obligation for RTPs. Under Section 4475, a money transfer agent, remittance processor, or payment intermediary is responsible for the following:

• Identifying whether a transaction is taxable under Section 4475
• Withholding the 1% remittance tax at the time of transfer
• Paying the tax collected to the IRS quarterly

If the tax is not paid at the time of the transfer, the RTP is liable for payment of the tax.

Compliance

Because this is a new excise tax withholding and payment obligation, RTPs will be required to build or enhance infrastructure to:

• Classify the transfer as subject to the Section 4475 tax
• Calculate and collect the tax when the transfer is made
• Make timely deposits to the IRS of the tax collected
• Meet any new IRS filing obligations
• Maintain documentation and create internal control procedures to comply with the new obligations

To prepare for these new compliance obligations, a payments company should consider whether it meets the definition of an RTP with respect to one or more cross-border offerings and product road map and, if so, consider the following:

• Whether the company is processing any remittances subject to the Section 4475 tax
• Whether current systems differentiate between payment sources and, if not, what would be needed to identify payment sources
• What the company’s obligations are under the new withholding framework and what changes are needed to comply with these obligations

By addressing these questions now and taking action before the January 2026 effective date of the tax, forward-looking payments companies can potentially turn this new compliance obligation into an opportunity.

Looking ahead

From the perspective of an RTP, the remittance tax is more than just a marginal fee. Rather, it’s a compliance milestone that will require payments companies that meet the definition of an RTP to potentially retool operations and rethink payment architecture. Payments companies handling digital assets should consult tax advisers and monitor developments regarding application of Section 4475 to digital wallets, blockchain rails, and decentralized applications.

It is expected that Treasury and the IRS will be issuing guidance and new forms in the coming months to implement the new tax. Payments companies and other organizations that could be subject to these new withholding obligations should consult their tax advisers to stay abreast of the latest developments.