US 1% remittance tax: cash-funded transfers to India are taxed, bank and card transfers are not

Indians in the United States who send money home in cash have been paying an extra 1% since the start of 2026. Proposed rules from the US Treasury and the Internal Revenue Service now set out which transfers are caught and which are not, and most transfers paid from a bank account fall outside the tax.

What changed

Section 4475 of the Internal Revenue Code, added by the 2025 law known as the One Big Beautiful Bill Act, imposes a 1% excise tax on certain remittance transfers made after 31 December 2025. In its release IR-2026-48 of 10 April 2026, the IRS said the tax applies when the sender pays with cash, a money order, a cashier’s check or a similar physical instrument.

The proposed regulations (REG-114499-25) appeared in the Federal Register on 13 April 2026. Comments closed on 12 June 2026. The main points:

• Taxed: transfers funded with cash, money orders, cashier’s checks and, under the proposal, traveler’s checks. If a provider cashes a personal or business check and uses the money for the transfer, that counts as cash.
• Not taxed: money withdrawn from an account at a financial institution, and transfers funded by a debit or credit card. The proposal also treats ACH transfers, personal checks handed to the provider, general-use prepaid cards and cards issued outside the US as non-taxable.
• Anti-avoidance: buying a prepaid card with cash and using it straight away for a transfer can be treated as a cash-funded remittance.
• Small transfers: transfers of $15 or less are excluded.
• Tax base: the amount actually sent to the recipient. Provider fees and the tax itself are not included.
• Who pays: the sender owes the tax. The remittance transfer provider collects it, deposits it twice a month and reports it quarterly on Form 720. If the provider fails to collect, it becomes liable itself.

The rules are still proposals. Under the proposal, they apply to transfers in calendar quarters after final regulations are published, but providers may rely on them for transfers made after 31 December 2025 if they follow them in full. In Notice 2026-52, the IRS extended penalty relief for providers’ deposit errors until the final rules take effect.

Who it affects

• Senders in the US who walk into a money-transfer agent with cash, or pay with a money order or cashier’s check, to send money to family in India.
• Anyone who does not fund transfers from a US bank account or card, since cash and paper instruments are the only routes the tax covers.
• Recipients in India, who see no change in Indian tax rules. This is a US tax collected at the sending end.

The proposed rules define a sender as a natural person in a US state, territory or the District of Columbia sending money mainly for personal, family or household purposes. Nothing in them depends on citizenship.

What it means for you

1. Fund transfers from your US bank account or with a US debit card wherever possible. These routes are outside the 1% tax.
2. If you must pay in cash, check your receipt. The provider should show the tax separately.
3. Do not try to dodge the tax by turning cash into a prepaid card just before a transfer. The proposed rules can treat that as a cash transfer.
4. Compare the provider’s fee and exchange-rate margin as well as the 1% tax, because together they decide what your family actually receives.
5. Watch for the final regulations, which could change the details.

Key dates

• 1 January 2026: Tax applies to transfers made after 31 December 2025.
• 10 April 2026: IRS announces proposed regulations.
• 13 April 2026: Proposed rules published in the Federal Register.
• 12 June 2026: Comment period closed.