Every dollar a U.S. resident sends home in cash, a money order or a cashier’s check has carried a new federal tax since New Year’s Day this year, and the companies that collect it have been operating under real slack from the IRS while they build the systems to do it correctly. That slack runs out with the calendar quarter that closes September 30, 2026. For anyone who regularly sends money abroad in physical form rather than by card or bank transfer, the change matters less for the tax rate itself, which isn’t moving, than for how strictly the company on the other side of the counter is about to start treating a mistake.
Cash, Money Orders and Cashier’s Checks Trigger the Tax; Cards and Bank Transfers Don’t
The charge is the remittance transfer tax, a new 1% levy that Congress wrote into the tax code as Section 4475, added by Section 70604 of the One, Big, Beautiful Bill Act, the tax law signed July 4, 2025. It applies only to remittance transfers made after December 31, 2025, and only when the sender funds the transfer with cash, a money order, a cashier’s check or a similar physical instrument, a narrow definition that determines exactly who feels this tax and who doesn’t.
Transfers funded from a bank account or paid with a debit or credit card are not covered, according to the IRS’s Working Families Tax Cuts page, last reviewed August 20, 2026. In practice, that leaves the tax falling hardest on senders without a U.S. bank account, often lower-income households and recent immigrants who rely on storefront money-transfer counters and pay in cash because that is the option available to them. The IRS has also issued proposed regulations spelling out how a remittance transfer provider is supposed to identify a covered transfer and collect the tax at the point of sale.
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Notice 2025-55 Gave Providers a Deposit-Error Buffer for Three Quarters
Collecting the tax from a sender is only half of a provider’s job. Under the law, a remittance transfer provider, generally a bank, credit union or licensed money-transmitter, also has to make a deposit of what it has collected every two weeks and file a quarterly Form 720 with the IRS, with the very first deposit due January 29, 2026. Getting a brand-new tax’s math right on a two-week cycle, from the first day the tax existed, is a tall order, and the Treasury Department and IRS said as much in Notice 2025-55, issued October 7, 2025.
The notice waives the usual failure-to-deposit penalty under Section 6656 for the first, second and third calendar quarters of 2026, as long as a provider deposits something on time every period, even if the dollar amount is calculated wrong, and then pays off any underpayment in full by the Form 720 due date for that quarter. It also protects a provider’s access to the standard deposit safe harbor, which is normally based on what the provider owed two quarters earlier, a calculation that’s mathematically impossible for a brand-new tax with no history, through the same three quarters, according to the IRS’s October 7 announcement.
The relief was never unconditional. Even during the three protected quarters, a provider had to satisfy the reasonable-cause standard under Section 6656, meaning it still had to make a timely deposit despite miscalculating it and clear any shortfall by the quarter’s Form 720 deadline. Skip a deposit entirely, and the relief doesn’t apply.
The Buffer Closes With the September 30 Quarter
Notice 2025-55 covers the first, second and third calendar quarters of 2026, meaning January through September. The third quarter ends September 30, 2026, and the Form 720 covering it is due October 31, under the Form 720 filing schedule the IRS applies every year. Neither Notice 2025-55, the IRS’s penalty-relief announcement, nor its proposed regulations mention extending the relief into a fourth quarter, so absent new guidance between now and then, deposits tied to transfers made in October, November and December 2026 are subject to the ordinary failure-to-deposit penalty, with no automatic reasonable-cause pass for an honest miscalculation.
For a provider, that is the difference between a computation error being a paperwork fix and being a penalty on top of the tax itself. For a sender, it is a reason the process at the transfer counter may start looking a little more careful: expect providers to tighten how they document a transfer’s payment method, double-check that the 1% is calculated and disclosed correctly on the receipt, and steer customers who can toward funding a transfer from a bank account or card, the two methods the tax never touches at all.
What a Sender Should Watch For Once the Grace Period Ends
Nothing about what a household actually owes changes on October 1. The rate stays 1%, and it still applies only to transfers funded with cash, a money order or a cashier’s check under Section 4475. What changes is the provider’s incentive to get every deposit exactly right the first time, since the IRS’s tolerance for an honest mistake disappears with the fourth quarter. Anyone who sends money abroad regularly is worth checking two things going forward. First, that the receipt shows the 1% tax applied and disclosed as its own line, since the statute makes the sender, not the provider, legally responsible for the tax itself. Second, that switching to a bank-funded or card-funded transfer, where legal residency status and banking access allow it, remains the one way to avoid the tax altogether, a detail the IRS has confirmed directly and that will not change when the grace period does.
This article was produced with AI assistance and reviewed by a human editor. Figures are linked to their primary sources; where a claim could not be verified from the public record, we say so.
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