On October 7, 2025, the IRS and U.S. Treasury issued significant guidance for remittance transfer providers with Notice 2025-55. In the relief offered by the IRS and U.S. Treasury, there is an understanding of the incident challenges in complying with a new excise tax on remittance transfers that the IRS would introduce under the One Big Beautiful Bill ("OBBB").
This established limited penalty relief with regard to the deposit requirements for the first three quarters of 2026. This is a new policy that will impact remittance providers located in every part of the United States, and millions of customers who use financial institutions to send cash across borders and cash in physical instruments.
Understanding the Remittance Transfer Excise Tax
Let us understand the Remittance Transfer Excise tax in detail:
What Is the Remittance Excise Tax?
- Under the One Big Beautiful Bill, effective January 1, 2026, a new excise tax will apply to certain remittance transfers. Here is what businesses need to know:
- An excise tax at the rate of 1% for the amounts remitted will be assessed on qualifying remittances sent outside of the US using cash, money order, cashier's check, or other similar physical instrument.
- Remittance transfer agents (banks, money transmitters, etc.), other businesses, or programs are mandated to collect the tax from the sender at the time of the transaction.
- The tax intends to regulate and tax the flow of certain outbound funds to impose transparency and enforcement on cross-border financial proceeds.
Who is impacted:
- Remittance services that send cash or physical instrument transfers out of the country.
- Small- and mid-sized financial institutions, local money transfer operators, and some credit unions may need to modify systems and procedures in order to comply.
- Consumers who use cash to initiate international money transfers or use other non-digital/electronic means will incur and pay the new tax; this tax will not affect transfers completed using the digital app unless the transfer involves a physical instrument.
Why Is the IRS Providing Penalty Relief?
Introducing an entirely new tax structure involves operational, technology, and practical challenges:
- Providers have to put new processes in place for the correct collection, withholding, depositing, and reporting of excise tax.
- A number of organizations are working on updates to compliance systems, retraining the workforce, and incorporating tax collection at the time of service.
- Acknowledging the pain points, the IRS and Treasury are allowing narrow penalty relief to mitigate not overly penalizing good-faith providers undergoing this transition while they get used to making errors in deposit amounts or issues with calculation.
Details of the Penalty Relief: What Providers Must Know
Notice 2025-55 provides an interim remedy for the first three calendar quarters of 2026:
Remedies
- No Penalty for Deposit Failures: If a provider fails to deposit the remittance tax in full, there will be no penalties if:
- All deposits are made timely (the deposits do not have to be correct); and
- Any unpaid excise tax is paid in full by the due date of the Form 720 (Quarterly Federal Excise Tax Return) for the quarter.
- Safe Harbor Exception: Remittance providers may rely on the safe harbor deposit rules established by the Excise Tax Procedural Regulations even if there were unpaid excise taxes due, as long as proper reasonable cause is demonstrated (i.e., the provider made a reasonable and good faith effort to comply but had implementation issues).
Timelines for Compliance
- Onset of New Taxation: The new 1% excise tax is effective January 1, 2026.
- First Deposit Due: January 29, 2026 (the first semimonthly deposit due date).
- Quarterly Federal Excise Tax Returns (Form 720): Due at the end of each quarter; providers must ensure all underpaid amounts are paid in full by the Form 720 due date.
- Time Period Covered by Relief: Exclusively for the first three quarters of 2026; penalties may apply after that for failure to deposit enough taxes, if relief has not been extended.
Reasonable Cause Standard
- Providers will have to show reasonable cause for the underpayment, perhaps because of operational issues related to a new system being implemented, calculation errors, or other operational issues from the first rollout.
- This relief is not open-ended; any willful neglect, willful failure to comply, or similar patterns of filing the same error will not be reasonable cause and could lead to penalties as well as enforcement action from the IRS.
How to Comply with the Remittance Excise Tax
Below are some points to remember to comply with the Remittance Excise Tax:
Register and Update Internal Controls
- Change compliance manuals and employee training so that they include the collection and reporting of the new tax.
- You may need to upgrade your system to identify qualifying transactions, calculate tax, and collect payment at the point of transaction.
Tracking Transactions
- You need to track every qualifying remittance and provide tax receipts to the sender in the appropriate tax year.
- Logs must track total amounts that transferred, amounts of tax withheld, and where the remittance was sent.
Deposit and Filing Schedule
- Tax is collected at the point of transaction and deposited with the IRS semi-monthly, and then reconciled and paid quarterly on Form 720 for any difference.
- Make sure to read the safe harbor and reasonable cause guidance very carefully to see if you are eligible for penalty relief.
Get ready for an audit by the IRS
- Accurate and complete records will be important if you are audited about their compliance with remittance taxes later on, or if you have penalty relief later on as well.
- You may want to find tax compliance consultants or specialized software to automate as much of the process as you can.
Economic and Industry Implications
Let us understand the impact of the Remittance Excise Tax on the economic and industrial sectors:
Impact on Remittance Providers
- There will be a temporary increase in administrative costs as there is likely to be some system upgrades along with the new training processes put in place.
- Smaller providers may experience operational difficulties and should seek to secure legal/tax advisory assistance early on as needed.
- For providers that strictly offer digital, account-to-account remittance solutions, exposure to the excise tax will be less significant; however, they will want strong controls in place regarding "mixed" transactions, depending on IRS guidance.
Impact on Consumers
- For low-income, elderly, or unbanked users relying on cash remittance channels, cross-border send transaction costs will likely go up 1%.
- There may be an incentive for going digital, with bank-based transfers to be exempt from the excise tax, depending on future IRS guidance.
Policy and Enforcement
The IRS's approach of balancing a new tax with transitional relief demonstrates an understanding of practical business and economic realities.
The relief allows the industry time to adjust, and the IRS is communicating that compliance will be enforced as the systems become more established.
Next Steps for Remittance Providers
- Evaluate Transaction Volumes: Recognize which transfer types and client segments will be impacted.
- Align Technology: Automate the flagging, tax calculation, and deposit compliance for transactions that qualify.
- Train Staff: Train all frontline and compliance staff on the new requirements, who needs to be doing things when, and what needs to be reported.
- Review Safe Harbor: Understand what adequate documentation is to provide reasonable cause for underpayment or improper calculations.
- Inform Customers: Revise disclosure materials and receipts; inform clients about the upcoming new federal excise tax and the impact on potential fees.
- Consult Advisors: Consult a specialized tax firm and fintech consultant to assist with implementation and seamless integration with tax implications.
Helpful Links
- IRS Launches Pilot for Post Appeals Mediation
- IRS to Phase Out Paper Tax Refund Checks Starting September 2025
- IRS Guidance on Qualified Tips and Tipped Occupations
The penalty relief offered by the IRS for remittance transfer providers as part of the One Big Beautiful Bill is a practical, timely action as the financial services industry moves toward a new excise tax regime. The proposed grace period gives the IRS a way to create positive motivation to also meet good faith compliance.
Importantly, it gives providers time to upgrade technology, train employees, and refine reporting. As the remittance context changes and becomes the new normal, providers and consumers need to be aware of new requirements and the expectation of full enforcement in late 2026 and the years ahead.
Timeliness in deposits, full transparency in reporting, and clear communication will encourage compliance and help keep the remittance process operational. Providers should keep abreast of IRS updates, continue to document well, and consult experts as needed.
Get in touch with The Fino Partners to stay in compliance with the ever-changing IRS regulations.
