In a recent announcement, the Internal Revenue Service (IRS) disclosed important details regarding its approach to the new federal excise tax on international money transfers. According to a report by Newsweek, this update includes a temporary penalty relief for financial institutions and money transfer companies.
The relief will provide businesses with a grace period to adapt to the new rules as the remittance transfer tax, part of the One Big Beautiful Bill Act, comes into effect. During the first three quarters of 2026, these companies will not face penalties for incorrect tax deposits, provided they meet the necessary deadlines and correct any underpayments.
The New Remittance Transfer Tax: What’s Changing?
Starting January 1, 2026, remittance transfer providers will be required to collect a 1 percent excise tax on specific international money transfers. This tax will apply to transactions made with cash, money orders, cashier’s checks, or similar physical payment instruments.
These new rules will directly impact financial institutions, money transfer companies, and millions of consumers who rely on these services to send money abroad. Companies like Western Union, MoneyGram, Remitly, Wise, and traditional banks, which provide remittance services, will be affected.
According to the IRS, these rules will require companies to make semimonthly deposits and file quarterly returns with the IRS. The first deposit under the new system is due on January 29, 2026. While the tax may seem small at first glance, the implementation of these new rules represents a significant change in the remittance landscape.
Why the Penalty Relief Matters for Providers
The IRS’ decision to offer penalty relief is crucial for easing the transition to these new requirements. The agency acknowledges that businesses may face challenges in fully adapting to the new law. A press release from the IRS and the U.S. Treasury explains,
“Treasury and the IRS understand there might be challenges implementing the new law and have determined it is in the interest of sound tax administration to provide limited penalty relief related to remittance transfer tax deposits.”
Under the newly issued Notice 2025-55, financial institutions and remittance transfer providers will not face penalties for incorrect tax deposits during the first three quarters of 2026. Companies will be able to avoid penalties as long as they make their deposits on time, even if the amounts are calculated incorrectly.
However, they must still pay the full amount of any underpayment by the due date of the Form 720, the Quarterly Federal Excise Tax Return.
The relief period will help companies adjust their systems to comply with the new rules. The IRS will also allow providers to use existing “deposit safe harbor” rules to avoid penalties, even when underpayments occur.
However, companies must meet the “reasonable cause” standard, meaning they must show that they acted in good faith when reporting and paying their tax liabilities. This limited penalty relief will apply through the third quarter of 2026, after which full enforcement will begin.
