US remittance tax comes into effect today: How will it impact Indians?

The 1 per cent remittance tax will apply to transfers made using cash, money orders or cashier's checks, affecting many NRIs in the US who send money abroad through physical payment modes

A new 1 per cent excise tax on certain international money transfers (remittances) will be enacted in the United States as part of the 'One Big Beautiful Bill Act' starting today, January 1, 2026.

 

The 1 per cent tax will apply to remittances when the sender makes the transaction with cash, a money order, a cashier’s check or a similar physical instrument.

 

Here's a breakdown of who will have to pay remittance tax and how it will impact individuals.

What is remittance tax and who will pay?

The US remittance tax is a small tax charged on money that people send from the US to other countries. It mainly affects non-US citizens living in the US, such as Non-Resident Indians (NRIs), green card holders, foreign students, and other immigrants.

 

 

The levy will shift part of the tax burden to immigrants. Collection responsibility falls on the companies that process remittances and money-transfer apps, so the fee is added before funds reach the recipients.

 

However, the tax will not apply if the money is sent through US banks or paid using debit or credit cards issued by US banks. This gives senders a way to avoid the tax by using these methods.

Who will be impacted?

NRIs, H-1B and other foreign workers, and Indian students will be the most affected by the remittance tax, unless they use the tax-exempt ways to send money to their home country.

 

According to the Asian Development Bank, the US remains the region’s largest single remittance source, channelling billions of dollars that fund household spending, education, and small businesses.

 

In 2021, US remittances to Asia and the Pacific totalled $61 billion, about 30 per cent of all remittances received, with India ($16 billion), the Philippines and the People’s Republic of China ($13 billion each) receiving the most.

Penalty relief

The US Treasury said it will provide temporary penalty relief for the first three quarters of 2026. Under this relief, remittance transfer providers will not be fined for deposit mistakes during this period if they meet two conditions. First, they must make their tax deposits on time, even if the amount deposited is not correct. Second, they must pay the full remaining tax amount by the deadline for filing Form 720, the quarterly excise tax return.

 

It also said that providers can use existing safe harbour rules for tax deposits during the first three quarters of 2026, even if they underpaid the tax at first. However, to avoid penalties, the provider must still be able to show that the mistake happened for a reasonable reason, not because of neglect or bad intent.