Millions of Americans who send money abroad will have temporary reprieve in sending money out of the country as the Internal Revenue Service (IRS) provides penalty relief for the initial 1 percent excise tax on certain remittance transfers. The action in October 2025 is meant to ease compliance problems for remittance providers as they shift to the new standard under the One, Big, Beautiful Bill Act.
What the new money-transfer law entails
Beginning January 1, 2026, remittance transferers—i.e., Western Union, MoneyGram, Remitly, and dusty old check-cashing outlets—will be required to deduct a 1 percent excise tax on cash, money order, cashier’s check, or other physical payment instrument transfers. Transfers of electronic funds from bank accounts, debit cards, or credit cards are exempt. Providers will be required to deposit semimonthly and file quarterly returns on IRS Form 720 with the first deposit due January 29, 2026.
IRS penalty relief guidance
In recognition of the operational and technical difficulties of making this new tax work, on October 7, 2025, Notice 2025-55 was released by the Treasury Department and the IRS. Under this guidance, remittance transfer providers can avoid deposit-penalty enforcement for underpayments during the first three calendar quarters of 2026 if they:
- Have semimonthly deposits made by the deadlines, even though the amounts are miscalculated
- Pay any deficiency on or prior to the quarterly Form 720 filing deadline
- Satisfy the reasonable-cause requirement and may apply deposit safe-harbour rules that are currently in place for any deficiency.
The transitional relief is designed to provide providers with a “cushion” as they change systems, train staff, and make reporting procedures simpler without fear of imminent penalty, which will eventually guarantee long-term compliance.
Who stands to benefit
While relief is aimed at money-transfer companies directly, it indirectly benefits millions of customers—namely, immigrant communities—relying on remittances to support families and friends abroad. By easing early compliance expenses and possible service disconnections, the IRS ensures providers can function smoothly and provide competitive fee prices.
Implementation timeline
- January 1, 2026: Newly added 1 percent remittance transfer tax takes effect on eligible physical-instrument transfers.
- January 29, 2026: First semimonthly deposit due for remittance providers.
- Q1–Q3 2026: Penalty-free period for underpayment on deposits, subject to timely deposits and underpayment settlement through Form 720 due dates[2].
- October 2026 and thereafter: Full enforcement of deposit-penalty rules begins again, after providers have had time to install new procedures and systems.
Trump administration policy legacy
Some of the policies of the Trump era shaped today’s remittance scene:
- Lower reporting threshold: In 2025, the Trump administration lowered the threshold for reporting cash transfers from $10,000 to $200 in some southern border ZIP codes to combat money laundering by cartels. The regulation compelled money transfer businesses along the southern border to collect names, addresses, and Social Security numbers on transactions over $200, which created concerns over “financial surveillance”.
- Initial remittance tax proposal: Trump’s landmark tax-and-spending bill included the initial tax proposal as a 5 percent remittance tax. Unrelenting industry opposition led to its reduction to 1 percent, a concession to balance revenue aspirations with economic justice for low-value senders.
- Executive power to impose remittance caps: Legal analyses in the Trump administration looked at invoking the International Emergency Economic Powers Act (IEEPA) in order to restrict individual remittances on national-security grounds. Never formally considered, the approach was an articulation of the administration’s interest in using emergency power to restrict capital flows and influence migration patterns.
The IRS fee-relief notice opens a generous runway for remittance providers to transition to the new excise tax compliance requirements. The companies can take time to review the internal controls, hire tax professionals, and implement accounting infrastructures within the penalty-free window. Complete deposit-penalty enforcement post-Q3 2026 will be reinstated, so early planning is necessary to save the companies from impending penalties.
For American remittancers who send money abroad on a regular basis, the transition to a taxed remittance system charges a relatively low fee but is tempered by the transitional relief provided by the IRS. As providers adapt, consumers can expect service continuity and transparent fee disclosure when sending qualified transfers.
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