Understanding US Remittance Tax Penalties

Here is a brief summary of the United States Remittance Tax:

What it is: The excise tax is a 1% tax imposed on international funds that are being transferred abroad from the United States. The excise tax targets transactions made through physical methods, including but not limited to cash, money order, and cashier's check.

Who it targets: The remittance transfer provider is subject to the remittance tax. It includes money transfer services, financial institutions, or businesses who conduct international transactions.

When does it become effective?: It becomes effective starting January 1, 2026, and the first required filing becomes due by the end of the first quarter of 2026.

Remittance Tax Rate: The 1% tax is imposed based on the value of the transfer.

IRC Section: It is found under IRC Section 4475, which is the One, Big, Beautiful Bill.

The remittance tax is filed quarterly with Form 720. This is the form that businesses must file to report the remittance excise tax to the IRS. Below is the due date for Form 720:

You must file Form 720 by the end of the month following the end of the quarter. For example, for Q1 (January–March), the form is due on April 30.

Note: If a Form 720 filing deadline falls on a Saturday, Sunday, or a federal holiday, the due date is automatically extended to the next business day, according to IRS filing rules.

Semi-Monthly Deposits

For the remittance excise tax, you’re required to make semi-monthly deposits. These deposits are due twice a month, specifically on:

1st to 15th of the month – due by the 15th of the month

16th to the end of the month – due by the last day of the month

This schedule ensures that the deposits are made timely and accurately, as set by the IRS.

Also read our blog on Remittance Tax due dates.

Many of us may assume that there will be no penalties for the first three quarters of Form 720 filings under the IRS penalty relief. However, this is not the case. It’s crucial to fully understand what the relief entails and how it affects the penalty structure.

The IRS penalty relief, as stated in Notice 2025-55, applies only to incorrect semi-monthly deposits. If you make an incorrect deposit (i.e., the wrong amount) but still deposit on time, the penalty may be waived under certain conditions. However, the relief does not apply to:

Failure to make the semi-monthly deposits: If you miss a deposit entirely, penalties will be imposed.

Quarterly Form 720 filings: The penalty relief does not apply to failures related to quarterly Form 720 filings.

So, the relief applies only when deposits are made on time but are incorrect. You must correct any underpayment in the following Form 720 filing quarter.

Visit the official IRS Penalty Relief Site to get a detailed understanding

Should you not submit your form 720 timely or pay the tax due amount correctly, the following penalties will be applicable to you:

Failure to File Penalty: 5% of your unpaid tax liability for each month you are late in filing your return; maximum penalty of 25% of your unpaid taxes.

There are many negative implications that arise if you do not comply with the rules of remittance taxation, including:

Impact on Reputation: You will ruin your reputation by constantly missing the deadlines for tax deposits and payments, especially with the IRS and business associates.

Excessive Audits: Non-compliance with the law may force the IRS to audit your organization.

Tax Compliance Problems: Failure to comply with tax requirements could make it difficult for you to receive additional tax relief.

Therefore, it is vital to strictly follow the deadline periods and deposit periods.

Read our blog on how to avoid remittance tax to learn about the exemptions available for remittance tax filings and understand the circumstances where you may be eligible for relief from this tax.

Conclusion

It is crucial for companies dealing with currency transfer to have a good knowledge of the recent remittance tax, including all the associated penalties. While IRS penalty waiver provides some flexibility for erroneous semi-monthly payments, you should keep in mind that your payments and quarterly reports need to be filed on time. Otherwise, your company might face severe consequences.

File your Remittance Tax Online with Simple720 now to avoid unwanted penalties!