A grace period for the new remittance tax
Millions of Americans who send money abroad to support loved ones will receive some relief next year. The Internal Revenue Service (IRS) has announced that financial institutions and money transfer companies such as Western Union, MoneyGram, and Wise will not immediately face penalties if they fail to correctly deposit a new federal excise tax on international money transfers.
Relief is short-term and arrives as the new remittance transfer tax system is imposed under the One Big Beautiful Bill Act. The IRS said the provision would permit the economy to shift smoothly and enable businesses to adapt to the new legislation.
By waiving certain penalties on a short-term basis, the authority hoped banks and remittance providers would have time to adjust their systems and processes before full implementation.
Comprehending the new 1% remittance tax
Starting from January 1, 2026, remittance transfer providers will be required to impose a 1% federal remittance transfer tax on certain customers who send funds abroad. The companies also need to make semimonthly deposits and quarterly reports to the IRS.
The first deposit of tax is January 29, 2026, and the new legislation applies to the employment of cash, money orders, cashier’s checks, or other tangible forms.
A majority of U.S. citizens use banks or money transfer agents to send remittances to foreign friends and relatives. Institutions like MoneyGram, Remitly, Wise, and Western Union handle millions of such transactions every year, and hence, this new rule is a huge change for both consumers and businesses.
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Penalty relief to help businesses adapt
In an Oct. 7, 2025, news release, the IRS said that it would waive penalties for the first half of 2026 to allow businesses time to transition.
“The Treasury and the IRS are aware that there may be challenges in implementing the new law and have determined it is in the interest of good tax administration to provide limited penalty relief related to remittance transfer tax deposits,” the agency stated in its release.
Under Notice 2025-55, remittance providers that timely deposit—though the deposits are not flawless—will be free from penalties as long as any underpayment is paid and made good in full by the due date of Form 720, the Quarterly Federal Excise Tax Return.
The IRS relief also allows providers to use the current “deposit safe harbor” rules on a transitional basis, offering a second level of protection as businesses transition to the new standards. But to qualify for relief, companies must show reasonable cause, i.e., in good faith and best efforts to comply with the law.
What this means for senders and receivers
For now, Americans sending money abroad won’t notice a thing. The 1% tax will actually be levied by senders when the new system is in full operation, but the reprieve from penalties ensures that money transfer agencies can continue to function normally while they update their systems.
This is particularly vital for families that are remittance-dependent as part of their daily income. Grace will avoid disruptions in international money transfers so that dependants continue to receive funds.
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What happens next
The penalty relief will lapse after the third quarter of 2026. From October 2026, the IRS will begin full enforcement of the new tax deposit and payment rules.
By the time it occurs, all money transfer businesses and financial institutions will have been required to implement system and reporting adjustments.
For millions of American families who send remittances to loved ones back home every month, this move by the IRS is a welcome relief. It stops new tax regulations from being phased in and puts the brakes on remittance services like Western Union, MoneyGram, and Wise from assisting families in keeping financial connections—without disruption or added stress.
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