Introduction to the New 1% U.S. Remittance Tax

Beginning January 1, 2026, the United States will introduce a 1 percent federal remittance tax on certain outbound transfers of funds from U.S. accounts to foreign recipients. While the rule is still new and guidance is evolving, it represents a major policy shift designed to track and tax capital leaving the country.

Overview and Purpose

For Canadian-owned U.S. corporations and individuals with U.S. bank accounts or investments, this new remittance tax could add a meaningful cost to cross-border cash movement. The change affects everything from intercompany dividends and management fees to personal transfers from U.S. to Canadian accounts.

Key Dates and Effective Period

The U.S. 1% remittance tax takes effect January 1, 2026, applying to outbound transfers from U.S. accounts to non-U.S. recipients.

TL;DR – 30-Second Summary

  • The U.S. 1% remittance tax takes effect January 1, 2026, applying to outbound transfers from U.S. accounts to non-U.S. recipients.
  • Canadian-owned U.S. entities may face added tax costs when repatriating profits, paying intercompany fees, or sending dividends to Canadian parents.
  • Individuals with U.S. accounts could also be subject to the tax when wiring money or transferring investment income to Canada.
  • Certain exemptions are expected for legitimate trade payments, payroll, or treaty-protected transactions, but detailed IRS guidance is pending.
  • Action steps now: map your cross-border cash flow, review ownership structures, and seek professional advice before 2026 to ensure efficient fund movement.

Understanding the New 1% U.S. Remittance Tax

What is the U.S. Remittance Tax?

The U.S. Remittance Tax is a new federal excise tax introduced under Section 4475 of the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025. It imposes a 1 percent tax on certain outbound money transfers made from the United States to foreign countries. Unlike income or sales taxes, it does not depend on what you earn or buy—it applies to how funds are sent.

Specifically, the tax targets cash-funded or physical-instrument remittances, such as those using:

  • Cash payments
  • Money orders
  • Cashier’s checks
  • Other similar “physical instruments,” as designated by the U.S. Treasury

The remittance provider (for example, banks, credit unions, Western Union, or MoneyGram) must collect the tax at the point of transfer and remit it to the U.S. Treasury quarterly. This payment type distinction means it is not included on your annual tax return—it functions as a point-of-sale surcharge rather than a personal tax liability.

When Does It Take Effect and Who Is Impacted?

The 1 percent remittance tax takes effect on January 1, 2026, applying to qualifying transfers after December 31, 2025.

It affects anyone sending money abroad from the United States, including:

  • U.S. citizens and residents
  • Green card holders
  • Non-citizens living in or using U.S. financial institutions

The recipient abroad—for example, a family member or business partner in Canada—is not taxed. The sender in the United States bears the 1 percent cost. The transfer provider is responsible for collecting and forwarding the tax to the IRS.

The stated goals of the tax include raising federal revenue projected at $4.5–$10 billion over 10 years and supporting border enforcement initiatives. Critics, however, warn that it could penalize lower-income and unbanked individuals who primarily rely on cash transactions.

Key Exemptions and Reporting Requirements

Certain transactions are exempt from the 1 percent excise tax, mainly those conducted through electronic or account-based means. Exempt transfers include:

  • Bank-to-bank wire transfers
  • ACH payments
  • Debit or credit card-funded transactions using U.S.-issued cards
  • Transfers from U.S. retirement or investment accounts
  • Online platform transfers (Wise, Revolut, etc.) when funded directly from a U.S. account

These exemptions significantly narrow the tax’s scope, leaving mainly in-person, cash-based remittances subject to the levy. The law therefore disproportionately impacts those without access to banking or digital systems.

Reporting Requirements

The remittance transfer provider collects and remits the 1 percent excise to the IRS quarterly under regulations to be issued by the Treasury Department. Individual taxpayers do not report the remittance tax separately; it appears as an added fee or tax line item on the transaction receipt. Providers must maintain records of taxable and exempt transfers for compliance and audit purposes under forthcoming Treasury regulations.

Summary for Canadian Companies and Cross-Border Individuals

For Canadians receiving payments from U.S. senders—personal or business—the inbound funds themselves are not taxed by the United States. However, if the U.S.-based sender uses a non-exempt, physical cash method (for example, a Western Union cash payment), they will pay the 1 percent U.S. tax before the money reaches Canada. To avoid it, both individuals and businesses should encourage electronic transfers or card payments.

Summary for Canadian Companies and Cross-Border Individuals

Transfers from U.S. Subsidiaries to Canadian Parents

When a U.S. subsidiary transfers funds to its Canadian parent, the new 1 percent remittance tax may apply if the transfer is made using cash, money orders, cashier’s checks, or other physical payment methods after January 1, 2026. Most corporate group transactions typically use electronic fund transfers (EFT) such as wire, ACH payments, or direct bank-to-bank transactions, which are exempt.

Only transfers where a U.S. company physically delivers payment in cash or a similar instrument—rare in the corporate context—trigger the tax. International intercompany payments for typical business operations, dividends, or invoices are nearly always made via digital channels to avoid both inefficiency and unnecessary excise cost.

Dividend vs. Remittance: How the Tax Differs

  • Dividends paid by a U.S. subsidiary to a Canadian parent continue to be governed by withholding tax and tax treaty provisions (like the Canada-U.S. Treaty rate, often 5–15 percent) and are not directly subject to the new remittance tax if transferred electronically.
  • The remittance tax is a point-of-transfer excise tax. It affects only those outbound cross-border movements funded with cash or physical instruments. It is separate from income, withholding, or corporate tax issues.
  • For example, a dividend declared and distributed by wire transfer to a Canadian parent’s bank account is exempt from the 1 percent remittance tax. But if the U.S. subsidiary instead hands over a cashier’s check to a Canadian parent or their agent to be cashed in Canada, that transaction could trigger the excise.
  • In summary: dividends and remittances are taxed differently. Using digital payment methods keeps dividend remittances out of scope for the new excise tax.

What to Review Before 2026 Implementation

  • Audit inter-company payment methods. Make sure all U.S. to Canada corporate fund flows use EFT, wire, or other exempt digital channels—not cash.
  • Update internal policies and vendor instructions. Direct staff, finance, and treasury teams to avoid using cashier’s checks, money orders, or physical cash to move funds cross-border.
  • Assess any unusual payments. Review cross-border transactions related to joint ventures, capital reorganizations, or intra-group settlements for exposure—especially for ad hoc or legacy payment arrangements that might be non-digital.
  • Add compliance language to contracts. Ensure contracts specify electronic-only payment methods for future transfers.
  • Monitor IRS guidance. Watch for final regulations regarding definitions of “physical instrument” or new reporting duties for U.S. subsidiaries making outbound payments.

For Canadian-owned U.S. corporations, the 1 percent remittance tax can usually be avoided by strictly using electronic channels especially for dividends, capital, or routine operating remittances. Review fund movement strategies now to eliminate the risk of triggering this new point-of-transfer tax from January 1, 2026 onward.

Cross-Border Implications for Individuals

Canadians with U.S. Bank Accounts or Investment Income

Canadians who hold U.S. bank accounts or investment income, such as U.S. rental properties, securities, pensions, or retirement plans, can be impacted by the 1 percent remittance excise tax—but only when physically transferring funds from the United States to Canada via cash, money order, or similar instruments. Electronic transfers like ACH, wire, or direct bank-to-bank remain exempt from the new tax.

For most investors and retirees, shifting money digitally or with a U.S. debit or credit card avoids the excise. However, any Canadians with limited access to U.S. banking or who use in-person money transfer services may face the surcharge on outbound movement of funds starting January 1, 2026.

Dual Citizens and Cross-Border Professionals

Dual citizens (U.S./Canada) and cross-border professionals regularly moving earnings, savings, or family support between countries must adjust to the new regime. The sender—regardless of citizenship—is responsible for the tax if using physical instruments from their U.S. accounts.

This affects:

Frequent use of electronic transfers, including wires and digital payment platforms, will generally exempt such remittances from the 1 percent tax. However, choosing cash-based or money order methods will now result in automatic IRS tax withholding on these transfers.

How to Minimize Double Taxation Risk

  • Use electronic transfers. ACH, wire, or card-based payments to move funds out of the United States are not subject to the remittance excise.
  • Claim tax credits. If tax is paid, the IRS may allow a credit to offset against U.S. federal tax liability (pending final regulations; eligibility depends on having a Social Security Number and your remittance provider’s reporting practices).
  • Leverage the Canada-U.S. Tax Treaty. Regular income such as dividends, interest, or pensions moved via exempt electronic channels remains protected under existing treaty rules, reducing double tax exposure.
  • Keep detailed records. For any in-person remittance subject to tax, retain transaction receipts and IRS compliance documentation for credit claims and cross-border tax filings.

By planning payment methods and reporting proactively, Canadians and dual citizens can largely avoid the risk of remittance tax and ensure they are protected from possible double taxation on cross-border transfers between the United States and Canada.

Tax Planning and Advisory Steps

Timing Outbound Transfers Before 2026

The new remittance excise tax takes effect on January 1, 2026, meaning all qualifying transfers made after December 31, 2025, will be subject to the 1 percent surcharge. Canadian-owned corporations, dual citizens, and individuals with U.S. assets should consider timing any large outbound payments before year-end 2025 to avoid the additional cost.

Companies repatriating funds, settling intercompany balances, or distributing dividends to Canadian shareholders may find it advantageous to complete such transactions before the tax becomes effective. This ensures cash movement occurs under the current rules without triggering the new excise.

Reviewing Treaty Protections and IRS Guidance

Although the remittance tax operates separately from income and withholding taxes, it still interacts with cross-border tax planning and reporting under the Canada-U.S. Tax Treaty. Depending on how the IRS finalizes its regulations, treaty provisions may limit overlap or provide relief in specific scenarios—particularly for business-related transfers, dividends, or pension income.

Taxpayers should also monitor forthcoming IRS and Treasury updates clarifying definitions of taxable instruments, collection procedures, and potential exemptions. Early review of these details helps determine whether your existing transfer processes remain compliant and cost-efficient.

Working with a Cross-Border Advisor

Navigating U.S. and Canadian tax regimes together requires proactive coordination. A cross-border accounting advisor can help:

  • Evaluate whether your business or personal fund transfers fall within the new remittance tax scope
  • Identify electronic transfer options to eliminate unnecessary exposure
  • Review intercompany and personal transfer patterns for compliance risks
  • Ensure your reporting aligns with both CRA and IRS expectations

Proactive planning in 2025 can prevent financial friction once the 1 percent tax becomes effective. Businesses and individuals should discuss cash management strategies, documentation requirements, and possible credit claims well before the new rule applies.

Key Takeaways

Stay Ahead of New IRS Regulations

The 1 percent remittance tax introduces an additional compliance layer for both individuals and corporations transferring money out of the United States. With implementation set for January 1, 2026, taxpayers should begin preparing now by reviewing how funds move across borders and ensuring their methods fall within exempt categories.

Staying informed about upcoming IRS and Treasury guidance will be critical. Early review helps prevent unexpected costs and administrative issues once enforcement begins.

Monitor Cash Movement Between Canada and the U.S.

Canadian-owned U.S. entities and individuals with cross-border income should carefully track how money flows between their American and Canadian accounts. While digital transfers are excluded from the new tax, cash-funded or physical payment methods can create unnecessary expense.

Establishing electronic-only payment policies and maintaining proper documentation ensures that corporate and personal remittances remain compliant once the rule takes effect.

Professional advisor reviewing IRS remittance rule 2026 with Canadian client, representing cross-border planning.
Canadians with U.S. accounts should review how the new 1% remittance levy impacts their cross-border income.

Update Your Corporate and Personal Tax Strategy

Whether you’re a business owner, investor, or dual citizen, now is the time to review your cross-border tax strategy. TMP Corp’s advisory team can help assess your exposure under the new remittance excise and identify practical ways to minimize its impact.

By planning ahead and aligning both corporate and personal cash management practices with upcoming regulations, you can protect liquidity, reduce audit risk, and maintain efficient cross-border operations.