IRS issues penalty relief for remittance transfer providers ahead of new 1% excise tax

The IRS has announced limited penalty relief for remittance transfer providers due to the new 1% excise tax on international money transfers set to take effect Jan. 1, 2026, under the One Big Beautiful Bill Act (OBBBA). The new tax, outlined in Notice 2025-55, marks a significant shift in how money transfer businesses will handle compliance and reporting.

For tax professionals advising financial institutions, fintech firms and cross-border payment services, this update is an important one. The transition will require procedural updates, revised systems for tax collection and careful planning to ensure compliance.

Understanding the new excise tax

Starting in 2026, a 1% excise tax will apply to certain outbound remittance transfers, payments sent from the United States to recipients in other countries. The tax applies when the transfer is made using cash, money orders, cashier’s checks or other similar physical instruments. Electronic transfers initiated through banks or payment apps are not affected unless they fall under specific qualifying conditions outlined in the new guidance.

In most cases, the remittance transfer provider, such as a bank, credit union or money service business, is responsible for collecting the 1% excise tax from the sender at the time of the transaction. Providers will then need to deposit the tax quarterly with the IRS, just as they do with other excise tax requirements.

This tax is part of the broader OBBBA legislation designed to generate additional federal revenue while promoting more transparency in cross-border financial flows.

Why the IRS is offering penalty relief

The IRS acknowledges that many remittance providers will require time to establish or modify their compliance systems prior to the 2026 start date. To ease that transition, Notice 2025-55 grants limited penalty relief for providers who fail to make timely deposits of the excise tax during the early implementation phase.

This relief covers failures to deposit the tax on time, provided that the provider acts in good faith and corrects the issue as soon as possible. The IRS has not yet specified the duration of the relief period but indicates that it is intended as a temporary measure to facilitate a smoother rollout of the new requirements.

For tax professionals, this relief period presents an opportunity to help clients prepare while avoiding penalties during the early learning curve.

What this means for tax professionals

This change affects more than just large banks. Any business facilitating cross-border transfers, including check cashers, payment processors and smaller remittance companies may fall under the new rule.

Tax practitioners working with these businesses should help clients:

• Determine applicability: review whether their transfer services qualify as “remittance transfers” under OBBBA and IRS definitions
• Prepare for collection responsibilities: ensure clients understand that they must collect the tax from senders at the time of the transaction
• Plan for quarterly deposits: create a schedule and system for collecting and remitting funds to the IRS
• Monitor ongoing updates: the IRS may issue additional guidance on reporting, penalties and deposit procedures as 2026 approaches

Because many smaller remittance providers rely on legacy systems or manual processes, this transition could be operationally complex. Firms that provide early guidance and implementation support will play a key role in helping clients stay compliant.

Practical steps to prepare now

1. Review your client list: Identify any businesses that facilitate money transfers or handle large volumes of international payments.
2. Explain the new excise tax: Many providers may not realize this 1% fee is their responsibility to collect and remit. Early education will prevent surprises later.
3. Encourage automation: Recommend updates to payment software and recordkeeping systems to capture, calculate and deposit the tax accurately.
4. Coordinate with compliance teams: Clients subject to Bank Secrecy Act (BSA) and anti-money-laundering (AML) requirements should align these new obligations with existing controls.
5. Track new IRS notices: The IRS is expected to release more details on safe harbors, penalty timelines and deposit procedures in 2025.

The broader impact on the industry

This excise tax signals a broader effort by the Treasury Department to strengthen tax compliance across international payment channels. It also underscores a growing focus on fintech and money transfer services that operate outside traditional banking structures.

For tax professionals, these developments underscore the growing importance of understanding not only tax law but also how technology and financial services intersect with compliance. Advisors who can guide clients through both regulatory and technical adjustments will be in high demand.

Final takeaway

The 1% remittance transfer excise tax is a significant new requirement that takes effect Jan. 1, 2026. While the IRS is offering temporary penalty relief to help providers adjust, the window to prepare is closing quickly.

Tax professionals should use this time to help clients review operations, design compliance workflows and understand deposit responsibilities. With proactive planning, remittance transfer providers can avoid penalties, streamline their processes and stay compliant once the new rules take effect. Use the current relief period to help clients build strong systems now, before the new tax becomes a permanent part of their business operations.