The Quiet Tax Grab That Could Hit Your U.S. Retirement and Investments: Why We Should Be Talking About the Remittance Excise Tax
There’s been a lot of attention recently—rightfully so—around proposed changes to Section 899 of the U.S. tax code. If enacted, this provision would significantly increase withholding taxes on U.S.-source income paid to residents of countries like Canada. It’s concerning, no doubt.
But what’s worrying me even more is something few are talking about: the new remittance excise tax proposed in the same bill.
While Section 899 targets ongoing income, the remittance tax is potentially broader and more damaging. It proposes a 3.5% tax on any funds sent out of the U.S. by non-U.S. persons. For many Canadians, that means a direct hit to your hard-earned assets—not just income.
Important Context: This Is Not Law Yet
As of now, this bill has only passed the U.S. House of Representatives. It still needs to pass the Senate and be signed into law before becoming effective. The proposed implementation date is January 1, 2026.
While no immediate action is required, this is the right time to start evaluating how your cross-border financial picture could be impacted. Being proactive now could position you to act quickly later, should this become law.
Why This Matters
This could affect you if:
- You’re moving back to Canada from the U.S.
- You live in Canada but still hold a U.S. 401(k) or investment account
- You own U.S. property and plan to sell
- You eventually plan to repatriate U.S.-based income or assets
This tax could be levied on transfers of principal, retirement withdrawals, real estate proceeds, or investment funds. It applies even if there is no income being earned at the time of transfer.
What Can Be Done?
A few proactive strategies could help:
- Repatriate Funds Before 2026
If this tax becomes law and takes effect on January 1, 2026, then completing large transfers before year-end 2025 could avoid the additional cost. MCA Cross Border Capital can help manage accounts across borders pre-move, but be mindful: moving assets to Canada could be considered a residency tie.
- Revisit 401(k) to RRSP Transfers
Historically, these are hard to justify due to mismatched tax rules. But if you’re going to be hit with a 3.5% excise tax on 401(k) withdrawals transferred to Canada, a rollover might actually save tax, especially if structured carefully.
What About a Canadian Foreign Tax Credit?
Some might hope Canada could allow a foreign tax credit for this U.S. excise tax. But realistically:
- Canada doesn’t tax the simple act of transferring your own money—so there may be no Canadian tax to offset.
- Even if eligible, foreign tax credits must be used in the same year in Canada. No carryforward is allowed.
Bottom line: Even if Canada allowed it, many Canadians wouldn’t benefit from the credit.
Final Thoughts
This remittance excise tax is a quiet but serious threat to cross-border financial plans. While Section 899 is getting headlines, this tax could affect a wider group of Canadians with U.S. ties.
Again—this is not yet law, but it’s something to watch closely.
If you have U.S.-based assets or income and plan to move funds to Canada, now is the time to become aware of your options and start planning. MCA Cross Border Capital is already helping clients assess their exposure and consider next steps.
Book a consultation today to begin planning for what could be coming.
