The Internal Revenue Service has issued proposed regulations fleshing out the 1 % excise tax on certain outbound remittance transfers enacted by the 2025 “One Big Beautiful Bill Act.” Under the draft rules, the tax applies only to transfers funded with physical cash, money orders, cashier’s checks or traveller’s cheques, largely sparing digital-wallet and bank-account transactions. Money-service businesses that accept cash must collect and deposit the tax semi-monthly and report quarterly on Form 720. The IRS also unveiled an anti-abuse rule allowing it to re-characterise multi-step transactions designed to avoid the levy. Although the primary compliance burden falls on remittance providers, the proposal contains important global-mobility implications. U.S. citizens, residents and non-resident aliens alike are liable; there is no treaty relief or personal-use exemption. International assignees who routinely wire cash home—or who rely on prepaid cards loaded with cash—could see an automatic 1 % deduction on every covered transfer. Mobile workers in the early stages of U.S. assignments, who often lack U.S. bank accounts, are particularly exposed. The guidance clarifies that ACH, debit-card and digital-asset transfers are outside scope, creating an incentive for employers to accelerate banking-onboarding for assignees. Small-value transfers under US$15 are exempt, but that threshold offers little relief for typical support-of-family payments. The IRS will provide penalty relief for deposit errors through Q3 2026, yet providers remain liable if they fail to collect the tax. Global-mobility programmes should review payroll-advance processes, per-diem disbursements and relocation allowances to identify cash-funded practices. Advisers recommend updating on-boarding materials to steer employees toward low-cost digital channels and educating them on potential anti-abuse re-characterisations. Companies with large populations of cross-border workers may also face reporting queries if employees question unexpected deductions. Final regulations are expected later this year, but taxpayers may rely on the proposed rules immediately, provided they apply them consistently. Early compliance planning will minimise surprises when enforcement begins in earnest.
Source: BDO Insights
