Planned US Tax Changes Set to Impact Americans Abroad and Foreign Fund Transfers

by Michele Pizzey, in ,

Two developments in US tax and financial regulation could soon significantly complicate life for US taxpayers living abroad, foreign nationals with US financial ties, and anyone seeking to transfer funds out of the United States. One measure is already moving through Congress, while the other has been mandated by Executive Order. Together, they raise new compliance hurdles and financial risks — especially for those without US bank accounts or those relying on paper-based IRS processes.

  1. Proposed 3.5% Excise Tax on Foreign Remittances

Included in the “One Big Beautiful Bill Act,” passed by the US House of Representatives on May 22, 2025, is a proposed 3.5% excise tax on remittance transfers — electronic transfers of funds from the US to recipients abroad. This Act contains many other hotly contested tax and funding provisions and is currently being debated and amended by the Senate. If passed as things stand currently, the excise tax would take effect for transfers made after December 31, 2025.

 

Key Features of the Proposal:

  • The tax would apply to: transfers from individuals located in any US state (including DC) to individuals located in foreign countries.
  • It would be withheld at source by “Qualified Transfer Providers” — banks or financial institutions that have agreements with the IRS. Senate amendments to the draft Act suggest that remittances funded from certain US accounts or funded with US-issued debit or credit cards will not be subject to the tax.
  • US citizens and nationals may claim exemption — but only if verified by a Qualified Transfer Provider.
  • Non-citizens and non-nationals (including Green Card holders and NRAs) will not be eligible for an exemption or tax credit — making this tax an outright cost.

Practical Challenges:

  • Even transfers from a US-based account to the same individual’s overseas account may fall within the scope.
  • Verification will require paperwork, and banks and other institutions will bear the burden of confirming citizenship or nationality.
  • US citizens not verified by a qualified provider may be taxed and forced to reclaim the withholding via their US tax return — a time-consuming and complex process.
  • Foreign sellers of US real estate, or partners in US businesses who wish to remit their proceeds or distributions, may be hit hardest.

Grey Areas and Concerns:

  • It’s unclear how transfers made by Americans living abroad will be treated, or what counts as being “located” in a US state.
  • The definitions draw heavily from consumer banking law (the Electronic Fund Transfer Act), which may not mesh neatly with tax law or real-world scenarios.
  • Anti-conduit rules will allow the IRS to trace multi-step transfers that attempt to circumvent the tax.
  • The implications on crypto and stablecoin transfers are uncertain and may be subject to future clarification. But currently, such transactions generally have no focal remittance transfer provider to implement an excise tax and seemingly could offer an uncertain workaround. A high degree of caution and continued monitoring of fast-moving legislative changes is to be applied.
  • The potential application of non-discrimination clauses contained within US tax treaties in this situation remains unclear.

  1. IRS to Eliminate Cheques for Refunds and Payments

Under a recent Executive Order, the IRS has been instructed to stop issuing paper cheques for refunds after September 30, 2025, and will phase out acceptance of cheque payments as well.

 

Key Implications:

  • Refunds will only be paid electronically into US bank accounts, prepaid credit cards, or digital wallets.
  • There will be limited, specific exemptions to this, which need to be applied for, although guidance on how to do so has yet to be issued.
  • Foreign bank accounts will not be accepted, effectively cutting off refunds for individuals without a US account.
  • Electronic payment methods only (wire transfers, debit/credit cards, digital wallets) will be accepted for paying US taxes, often incurring extra fees.

This change is particularly problematic for:

  • NRA filers (non-resident aliens), including:
    • Foreign partners in US partnerships
    • Retirees abroad receiving US pensions
    • Foreign taxpayers reclaiming excess Federal tax withheld at source
  • These individuals may find themselves unable to receive refunds without opening US bank accounts — and once funds are deposited, remitting them overseas could trigger the 3.5% excise tax discussed above.

What Should Affected Individuals Do?

Until more clarity is available, taxpayers and non-resident filers should consider the following:

  • US citizens and nationals abroad:
    • Confirm that your financial institutions are or will become Qualified Transfer Providers.
    • Be prepared for additional verification paperwork.
    • Consolidate or defer non-essential outbound transfers until the legislation is finalized.
  • Foreign nationals (including Green Card holders and NRAs):
    • Be aware that you may be unable to claim back the excise tax.
    • Plan accordingly if you anticipate large US fund transfers post-2025.
  • All taxpayers without a US bank account:
    • Consider opening a US account as soon as possible, especially if you are due a tax refund in the next 12–18 months.
    • Be advised that non-residents may face difficulty doing so, and professional advice or help from financial institutions may be needed.

Final Thoughts

These changes — whether legislative or administrative — further complicate what is already a burdensome compliance environment for Americans abroad and non-residents dealing with the US tax system. The overlap of refund limitations and outbound remittance taxes may leave some filers trapped between inaccessible refunds and punitive remittance costs.

 

Until more concrete guidance is issued, planning, awareness, and proactive account management are critical. As always, individual circumstances vary, and tailored advice should be sought.