The House-passed bill changed the proposed excise tax rate to 3.5%. See Tax Alert 2025-1116.

The House Ways and Means Committee's budget reconciliation bill, as modified by the House Budget Committee (the Bill), would impose a 5% excise tax on a "remittance transfer" after December 31, 2025. The Bill would add three sections to the Code:

• IRC Section 4475, which would impose the excise tax, with certain exceptions and operating rules
• IRC Section 36C, which would allow US citizens and nationals upon whom the excise tax is imposed to claim an income tax credit, subject to certain conditions
• IRC Section 6050BB, which would require RTPs to file certain information returns

The Bill would impose penalties for late or inaccurate information returns and payee statements under IRC Sections 6721 and 6722, the same provisions that apply to Forms 1099 and 1042-S.

Under these provisions, an RTP would generally be required to collect and deposit with the IRS an excise tax equal to 5% on a remittance transfer made by a consumer to a designated recipient, unless an exception applied. RTPs failing to collect the tax would be liable for its payment.

Remittance transfer

"Remittance transfer" is defined by cross-reference to the Electronic Funds Transfer Act (EFTA), which applies to banks, money transmitters and others in the business of making electronic funds transfers. The purpose of the remittance transfer provisions in EFTA is to require the RTP to disclose the fees, exchange rate, net amount to be received by the recipient and certain other information.

EY observes: Because RTPs already are required to comply with EFTA, they may have business processes in place that identify remittance transfers.

A remittance transfer occurs when an RTP transfers funds from a "consumer" (defined under the EFTA as a "natural person") to a "designated recipient," whether or not the consumer holds an account with the RTP. A typical use case is individuals from a foreign country who send money to their home country through a money transmitter, although EFTA applies much more broadly, for example, when a US parent sends money to child studying abroad. A remittance transfer does not include a transfer of $15 or less.

A "designated recipient" is any person located in a foreign country and identified by the sender as the authorized recipient of a remittance transfer to be made by an RTP, and may be an entity as well as an individual. The foreign location of the recipient is a requirement, so US-to-US transfers would not result in tax.

According to a 2019 FDIC publication that explains EFTA, remittance transfers include:

1. "Transfers in cash or by another method conducted through a money transmitter or a financial institution.
2. Consumer wire transfers conducted by a financial institution upon a sender's request to wire money from the sender's account to a designated recipient.
3. An addition of funds to a prepaid card by a participant in a prepaid card program, such as a prepaid card issuer or its agent, that is directly engaged with the sender to add these funds, where the prepaid card is sent or was previously sent by a participant in the prepaid card program to a person in a foreign country, even if a sender retains the ability to withdraw such funds.
4. International ACH transactions sent by the sender's financial institution at the sender's request.
5. Online bill payments and other electronic transfers that a sender schedules in advance, including preauthorized remittance transfers, made by the sender's financial institution at the sender's request to a designated recipient."

EY observes: Without an RTP, no tax would apply, so a transfer of stablecoin or other digital assets from one wallet or address to another wallet or address by an individual would not be subject to the excise tax, provided the individual makes the transfer without the assistance of an RTP. (It is also not clear that digital assets constitute "funds" under EFTA.) The excise tax could, therefore, create an incentive to transfer funds via digital assets rather than through the banking system or fintech companies that provide alternatives to banks.

Exceptions

No tax would apply at source if the following to conditions were met:

• The RTP is a "qualified" RTP that has entered into a written agreement with Treasury to verify the status of senders as US citizens or "nationals"
• The sender is a "verified United States sender," which is defined as a US citizen or "national," as verified by the qualified RTP (A "national" owes allegiance to the US but is not a citizen; the category consists almost exclusively of persons born in American Samoa or on Swains Island.)

The Bill does not define the terms of the qualified RTP agreement.

EY observes: There are precedents that the IRS may consider in creating the agreement. For example, qualified intermediaries under Revenue Procedure 2022-43 agree to certain due diligence procedures and generally are subject to an independent review of their compliance every three years at their own expense.

EY observes: Green card holders are neither US citizens nor nationals. Accordingly, the excise tax would apply to transfers by green card holders, even if the transfer goes through a qualified RTP. However, both US citizens and green card holders generally provide Form W-9 when opening a financial account. It seems likely that due diligence beyond the collection of Form W-9 will be required (or that the Form W-9 will need to be updated) in order for a qualified RTP to establish that an individual is a US citizen or national.

If tax were imposed on a US citizen or national, perhaps because the transfer is conducted through an RTP that is not a qualified RTP, new IRC Section 36C would allow the US citizen or national sender to claim an income tax credit, similar to the way backup withholding works. However, several conditions would apply:

• The individual must have a social security number (SSN), not an individual taxpayer identification number (ITIN) or employer identification number (EIN), and list the SSN on a tax return for the applicable tax year.
• If the individual is married, the individual's spouse also must have an SSN (which also must be listed on the individual's tax return for the applicable year, apparently even if no joint return is filed).
• The individual must certify to the RTP an "intent" to claim the credit.
• The individual must establish that the tax was deducted from the remittance transfer.
• The individual must provide certain information to the RTP, such as name, address and other information that will be included on the information return described next.

According to the Joint Committee on Taxation report on the Bill (JCX-21-25), the individual "must demonstrate, to the satisfaction of the Secretary, that … he or she is a citizen or national of the United States."

Information reporting

The RTP would be required to file information returns on the remittance transfers under the new IRC Section 6050BB. Three categories of reporting would be required:

1. US citizens and nationals who certify that they will claim the credit and who provide the required information to the RTP: This information would be reported separately by the RTP and a copy of the information return would be furnished to those persons to substantiate their claim of a credit equal to the excise tax on Form 1040.
2. The excise tax was imposed and the sender was not a US citizen or national or did not certify its intent to claim the credit: The RTP would file an aggregate information return to report the tax paid and remitted on all applicable transactions.
3. A qualified RTP that did not withhold the tax on verified US senders: The RTP would file an aggregate information return (reporting the number and value of the transfers) for all such transactions.

EY observes: RTPs will need to develop new processes and systems to identify remittance transfers and carry out these reporting requirements. In addition, the IRS will need to create a new Form 1099 or other information return, as well as the systems required to accept the information returns. RTPs could have difficulty creating these new processes and systems in the absence of timely guidance from Treasury and the IRS.