A Major IRS Update: New 1% Tax on Certain Money Transfers Starting January 1, 2026

The IRS has officially released guidance confirming a new 1% Remittance Transfer Tax, which will apply to specific money transfers beginning January 1, 2026. This tax was introduced under the One Big Beautiful Bill (OBBB) and will primarily affect individuals and businesses that send money using cash, money orders, cashier’s checks, or similar physical instruments.

If you use digital methods—such as bank apps, debit/credit cards, PayPal, Zelle, Venmo, or Cash App—these transfers are not expected to be affected under current IRS guidelines.

Who Will Be Affected?

This new tax applies to senders who initiate transfers funded with:

• Cash

• Money Orders

• Cashier’s Checks

• Similar physical instruments

Traditional remittance providers and money transfer companies must collect the tax at the time of the transaction and pass it to the IRS.

What Is Changing for 2026?

Beginning January 1, 2026:

🔹 1% Remittance Tax Applies

A 1% excise tax will be charged when sending money internationally using the qualifying physical payment methods listed above.

🔹 Collected by Transfer Providers

Services such as remittance companies will add this tax at the time of transfer.

🔹 Quarterly IRS Reporting Required

Providers must file Form 720 and make semi-monthly deposits of the tax.

🔹 Digital Transfers Not Impacted (for now)

Most electronic transfers are excluded unless IRS rules change in the future.

Penalty Relief for 2026

To help businesses adjust, the IRS—through Notice 2025-55—is offering penalty relief for the first three quarters of 2026. Providers who miscalculate or underpay the deposit amounts can avoid penalties if:

1. Deposits are made on time, even if the amounts are incorrect

2. Any underpayment is fully paid by the due date of the quarterly Form 720
   
   

This transition period ensures smooth implementation and gives businesses time to update their systems.

Why This News Matters to You

If you or your clients regularly send money abroad using cash-based remittance services, you may see slightly higher costs starting in 2026. Businesses that process remittances will need to prepare for collection, reporting, and compliance with the new IRS rules.

We will continue monitoring IRS releases and provide updates as new information becomes available.

📞 Feel free to reach out directly at Mid America Tax Planners - Contact Us.