Anyone in the United States who sends money to family in India by walking into a transfer shop with cash has been paying an extra 1 per cent since January. A new IRS notice, released on 24 September 2026, extends a grace period for the companies that collect that tax. It does not change what senders owe, and the final rules are still being written.
What the tax is
The tax comes from section 4475 of the US tax code, added by the law signed on 4 July 2025. It applies to remittance transfers made after 31 December 2025 and is set at 1 per cent of the amount sent. The sender pays it. The transfer company collects it at the counter, pays it over to the IRS and reports it every quarter on Form 720, its quarterly excise tax return.
The rate is small in plain terms. A 500 dollar transfer paid in cash carries a 5 dollar tax, and a 2,000 dollar transfer carries 20 dollars. The IRS's proposed rules say the tax is worked out on the amount delivered to the person receiving the money, and it attaches when the transfer is made. If a transfer is cancelled and the money is returned, the proposed rules say the sender may be able to claim a refund from the IRS.
Which transfers are taxed and which are not
The law taxes only transfers that the sender pays for with cash, a money order, a cashier's check or a similar physical instrument. The proposed regulations, published in the Federal Register on 13 April 2026, add traveller's cheques to that list. They also say that if a transfer shop cashes a cheque for the sender and uses the cash to fund the transfer, it counts as a cash transfer.
The law leaves out transfers where the money comes from an account at a US bank or other covered financial institution, and transfers paid with a debit or credit card issued in the United States. The proposed rules go further and treat card payments as untaxed wherever the card was issued. They also leave personal and business cheques and general-use prepaid cards outside the tax, subject to an anti-avoidance rule. This is information, not tax advice, and the rules are not yet final.
What the September notice actually does
Notice 2026-52 is aimed at transfer companies rather than customers. An earlier notice, Notice 2025-55, gave them relief from penalties during the first three quarters of 2026 for deposits of the tax that were made on time but worked out wrongly. That relief did not cover any quarter starting after 30 September 2026, so it would have lapsed when the October to December quarter began.
The new notice keeps it going. A company is treated as having reasonable cause, and so avoids the failure-to-deposit penalty, if it makes its deposits on time even when the amounts are worked out wrongly, and pays any shortfall for the quarter by the Form 720 due date. The relief lasts until final regulations take effect, and the IRS says the extension is meant to continue the transition while the rules are being finalised.
Where the rules stand for senders
Under the April proposal, the final rules would apply from the first calendar quarter that begins after they are published. Until then, companies and senders may rely on the proposed rules for transfers made after 31 December 2025. Comments on the proposal closed on 12 June 2026. The notice gives no date for the final version, so the funding-method rules described above are the working guide for now.
For families in India who rely on money from relatives in the US, little changes this quarter. Transfers paid in cash still carry the 1 per cent charge, and transfers paid from a US bank account or with a card still do not. Indian professionals in the US are also watching changes to work-visa costs, which we set out in our report on the proposed 103,265 dollar H-1B fee.
For the bigger US picture, our report on September's jobs figures and the Federal Reserve's rate rise sets out the latest official numbers. Anyone unsure about a particular transfer can ask the provider which funding method it records, since that choice decides whether the tax applies.
