The new 1% remittance tax applies to certain cash-funded transfers, not to every payment sent from the United States.
To compare real cost, consumers should look at four numbers together: transfer fee, tax, exchange rate, and the amount the recipient actually receives.
A federal rule that took effect on Jan. 1, 2026 changed the economics of some cross-border consumer transfers from the United States. Under Internal Revenue Code section 4475, a 1% remittance tax applies when a sender funds a covered transfer with cash, a money order, a cashier’s check, or a similar physical instrument. It does not apply to every remittance.
The main exemptions matter as much as the tax itself. Treasury and IRS guidance says the tax does not apply when the money being transferred is withdrawn from a qualifying account at a covered financial institution, or when the transfer is funded with a debit card or credit card issued in the United States. For consumers, that means the payment method can now change the all-in cost even before a provider’s own fee or exchange rate is considered.
What the rule covers
The IRS said in April 2026 that senders are liable for the 1% excise tax, while remittance transfer providers must collect it, deposit it semi-monthly and report it quarterly on Form 720. Proposed regulations also clarified that the tax base is the amount transferred, not the provider’s service fee. They further said a traveler’s check can count as a similar physical instrument, and that if a provider cashes a check for a sender and that cash funds the transfer, the transfer is treated as cash-funded.
As of Oct. 1, 2026, Treasury and the IRS had issued proposed regulations and allowed taxpayers and collectors to rely on them before final rules are published. Consumers should still check provider disclosures because implementation details can differ at the point of sale.
How to measure the real cost
A low advertised fee can be misleading. The better test is to break a transaction into four parts: the provider fee, the 1% remittance tax if the transfer is cash-funded, the exchange-rate spread built into the conversion, and the final payout to the recipient in local currency.
That framework matters because the tax is only one layer of cost. MoneyGram’s current U.S.-to-Philippines consumer guidance says exchange-rate margin is built into the conversion and can reduce the amount received even when the transfer fee is shown as $0. Wise’s public U.S.-to-Philippines page, checked on Oct. 1, showed a sample rate of 1 U.S. dollar to 62.8337 Philippine pesos and a total fee of $2.99 for a $500 transfer, while also listing higher costs for some other funding methods on the same route.
A worked example
Start with a simple illustration. If a provider quotes a $500 transfer and charges a $3 fee, an account-funded transaction would cost the sender $503. A cash-funded remittance with the same quoted fee would add a 1% federal tax on the $500 transfer amount, or $5, lifting the sender’s out-of-pocket cost to $508. If the exchange rate is unchanged, the recipient may receive the same foreign-currency payout while the sender pays more. If the provider also uses a wider FX spread on one funding method, the recipient could get less as well.
That is why the most useful comparison is not the fee alone, but how many pesos, rupees or pesos mexicanos arrive after every charge and markup is accounted for.
What to verify before sending
Consumers should compare quotes using the same send amount, the same country corridor, the same payout method and the same time stamp. A bank deposit quote should not be compared with a cash-pickup quote, and a promotional first-transfer rate should not be treated as standard pricing. Remitly’s public Philippines pages, for example, currently display a promotional welcome rate for new customers, but the fee and final payout can depend on whether the user chooses Express or Economy and on the payment method used.
One more detail matters if a transfer falls through. The IRS says senders can file for a refund of remittance transfer tax on canceled or expired transfers using Form 8849 Schedule 6 if the provider did not already refund the tax.
The headline change in 2026 is real, but narrower than it first appears: this is a tax on certain cash-funded remittances, not on every transfer out of the country. The smartest comparison is still the simplest one: look at the recipient’s net amount, not just the advertised international transfer fees.