What the Proposed 5% Remittance Tax Means for Crypto Users

Over the past few months the new Congress and Administration have shown that they can approach crypto regulation with deliberation and respect for process: the repeal of the broker rule was a massive win for privacy, the SEC’s shift away from jurisdictional expansionism is encouraging for the rule of law, and the Deputy Attorney General Blanche memorandum committing DOJ to ending “regulation by prosecution” is a step away from unconstitutional and unreasonable liability for developers.

The new remittance tax in the “Big Beautiful Bill” tax package, however, is inherently pro-surveillance and its implications for crypto are complex and worrying. In this post, we explain how that proposed tax is intended to work, why it would penalize privacy‑minded Americans, where crypto fits in, and whether there are adjustments that could be made to limit the danger the provision presents to our privacy and speech rights.

What’s in the ‘Big Beautiful Bill’

Deep in Section 112105 of the latest omnibus proposal is a brand‑new excise tax on “remittance transfers.”¹ Every time a consumer sends money abroad, the government would tax 5 % of the amount. The tax is drafted to ride piggy‑back on the Consumer Financial Protection Bureau’s existing remittance‑transfer rules,² turning every “remittance transfer provider” into a tax collector for the Treasury Department.

There’s one statutory way out of that tax, however: identify yourself as a U.S. citizen or national and use a provider that has signed a compliance agreement with Treasury to do that identification and verification.³ Fail either step and you must pay the 5 %.

Even if you agree with the policy as a revenue measure or smart policy tool, make no mistake, this is a mass financial surveillance and control regime. Americans looking to send their own funds out of the country are penalized unless they use a “qualified” and “verified” provider based on unwritten standards to be decided by the Treasury Department.

As we’ll discuss below, the current proposal would not apply to crypto transactions using self-hosted wallets and may not even apply to some transactions at trusted intermediaries. Those entirely legal avenues, however, could lead to a renewed attempt to force intermediaries to collect intimate information about persons who are not their customers, like the midnight rulemaking of 2020. Coin Center will be ready to oppose that development if it comes to pass, just like we opposed the 2020 rulemaking on constitutional and civil libertarian grounds.

Who Really Pays? The Key Definitions

The bill borrows its vocabulary on “remittance transfers” and “providers” from the CFPB’s Regulation E Subpart B rules made under authority from the Electronic Fund Transfer Act:

But this chart is an oversimplification. By virtue of the bill building on existing EFTA and CFPB definitions there are some very difficult questions about coverage in the world of crypto:

1. Are the providers of self-hosted wallets remittance transfer providers? Probably not because they don’t “initiate” or “send” customer funds.
2. Are hosted wallet providers remittance transfer providers? Maybe, but not if “funds” doesn’t include crypto, a question on which the CFPB has never opined.
3. Even if you are sending funds as a provider, are you sending a covered remittance transfer if your customer doesn’t specify that the wallet address they’ve provided belongs to a person in a foreign county? Remarkably, no. Moreover, existing EFTA obligations never included a requirement to ask for, or verify the location of, the transfer recipient.

1. Self‑hosted wallets: outside the fence

A self‑hosted (or non‑custodial) wallet developer doesn’t “send” funds on behalf of anyone; users sign and broadcast their own transactions. Without an agency relationship—or a fee‑for‑transfer business—the developer is not a remittance‑transfer provider. Statute and CFPB commentary back this up:

The definition of “remittance transfer” requires that a transfer be “sent by a remittance transfer provider.” This means that there must be an intermediary that is directly engaged with the sender to send an electronic transfer of funds on behalf of the sender to a designated recipient.⁶

Nor could Congress readily shoehorn them in: as we wrote in a lengthy report back in 2019, compelling open‑source developers to collect user data raises thorny First Amendment and Fourth Amendment questions.

2. Hosted wallets & exchanges: theoretically on the hook

Custodial platforms like Coinbase or Kraken do initiate transfers for users and therefore check the provider box. But there’s a catch: the CFPB has not yet definitively said that virtual currency is “funds.”⁷ The CFPB was previously headed down this road but all new rules were frozen by the incoming administration. Until that interpretive gap is closed, exchanges have an arguable out—but they should plan for compliance all the same.

3. When is a transfer a remittance?

Even if “funds” does include crypto and even if hosted wallets can, in theory, be treated as remittance providers, there remains yet another way that sending crypto even via trusted intermediaries might not qualify as taxable. Because the bill relies entirely on the CFPB framework, a hosted provider that does not collect a recipient name or foreign‑country indicator does not trigger the “designated recipient” element of the remittance transfer definition.⁸ That transaction is technically not a remittance under the EFTA. Blockchains allow you to send money using nothing more than a unique cryptographic address for the recipient, and that address may be all that the customer discloses to the provider when sending their crypto. Would such a transaction be subject to the tax if the person controlling that address is later revealed to be overseas?

Nor do the existing rules from the EFTA require any kind of affirmative duty on the part of the transfer provider to inquire and verify the destination country of a transfer; a hosted wallet provider could just take the bare blockchain address and leave it at that. In fact, CFPB commentary on past rules clearly says that the provider may rely on merely the information voluntarily provided by their customer at the time of the transfer and can safely assume that a transaction is not a remittance if the customer provides nothing suggesting the opposite:

Where the sender does not specify information about a designated recipient’s account, but instead provides information about the recipient, a remittance transfer provider may make the determination of whether the funds will be received at a location in a foreign country on information that is provided by the sender, and other information the provider may have, at the time the transfer is requested. For example, if a consumer in a State gives a provider the recipient’s email address, and the provider has no other information about whether the funds will be received by the recipient at a location in a foreign country, then the provider may determine that funds are not to be received at a location in a foreign country.⁹

One might argue that, as a money transmitter, the hosted wallet provider has other obligations to verify the recipient’s location details but this is not generally the case. These transactions have correctly been treated like withdrawals from the financial system rather than in-system wires where the travel rule and other KYC/AML controls apply.

Will hosted wallet providers become an avenue that senders can use to avoid the tax? Will frustration with this method of tax avoidance lead us to yet another attempt from Treasury to implement the midnight rulemaking from 2020.¹⁰ Recall that Coin Center opposed the midnight rule unequivocally because it would have obligated hosted wallets companies to collect and verify information on the non-customer recipients of their customer’s transactions.¹¹ So many questions emerge from this new tax.

Unintended Consequences of the Remittance Tax

A number of strange or perverse outcomes follow from the proposal:

• Privacy inversion. Citizens must reveal more about themselves than non‑citizens to avoid extra taxation. That’s a “papers please” rule for Americans who wish to transact without confiscatory taxation.
• Regulatory arbitrage. Self‑hosted wallets, and hosted wallets that don’t ask for recipient location data, may become even more attractive for cross‑border remittances to friends and family “back home.”
• Future developments. Will that regulatory arbitrage trigger a crackdown on hosted wallet providers that, like the midnight rulemaking of 2020, endangers the constitutional privacy and speech rights of Americans building and using crypto?

At the very least, a simple prophylactic against those future developments should be included in the bill. To best ensure that the remittance tax is never used as an excuse to limit the personal privacy or speech rights of Americans, we would support something along these lines:

LIMITATIONS ON SECRETARIAL AUTHORITY.—

Notwithstanding any other provision of this subchapter, the Secretary of the Treasury may not, by regulation, order, guidance, or any other means—

1. require a remittance transfer provider to obtain, verify, or retain personally identifying information regarding any individual who is not a direct customer of that provider; or
2. treat any non-custodial entity—including, without limitation, developers or distributors of software wallets, blockchain node operators, or miners—as a “remittance transfer provider,” or otherwise obligate such non-custodial entities to register with, enter into any verification agreement with, or submit identifying information to, the Treasury Department or the Consumer Financial Protection Bureau.For purposes of this subsection, “non-custodial entity” means any person or organization that does not unilaterally control consumer funds in connection with a remittance transfer, including entities whose sole activity is providing or maintaining software, protocol or payment network infrastructure, or network-validation services.

Additionally, a requirement to minimize the amount of identifying information collected by providers that elect to qualify for the citizenship carve-out should be contemplated. This could also include the option of using privacy preserving mechanisms for proving nationality without sharing any additional personal information, where available. This triggers a much larger conversation about privacy and identity and whether we should feel comfortable with more gate-keeping if the ticket through the gate, at least, protects our privacy. Coin Center is in the early stages of developing policy recommendations on these difficult questions.

Even with additional safeguards the privacy and liberty implications of the scheme may remain grave. That said, these additional limitations would address some of our chief concerns.

Conclusion

No matter your position on the remittance tax as policy, the current implementation in the Big Beautiful Bill will penalize privacy, complicate compliance for law‑abiding exchanges, and push users toward self‑hosted crypto tools—which remain fully legal and, under this very bill, entirely outside the tax’s scope. We are gratified that the current proposal does not cover peer-to-peer transactions and does not force intermediaries to identify people who are not their customers. Coin Center is also wary that we may need to defend those principles should the scope of the planned remittance tax grow, and we would support legislative efforts to stem that tide before it starts.

Notes