Paying Debts with Legal Tender

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Yesterday I wrote about an Indiana man who paid his $12,000 tax bill with coins and $1 bills. This is entirely legal, though admittedly a painful process for all involved. According to Wikipedia, legal tender is payment that, by law, cannot be refused in settlement of a debt denominated in the same currency. From the…

Yesterday I wrote about an Indiana man who paid his $12,000 tax bill with coins and $1 bills. This is entirely legal, though admittedly a painful process for all involved. According to Wikipedia, legal tender is payment that, by law, cannot be refused in settlement of a debt denominated in the same currency.

From the US Treasury:

According to the Coinage Act of 1965, specifically Section 31 U.S.C. 5103, entitled “Legal tender,” which states: “United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues.” Foreign gold or silver coins are not legal tender for debts.

Public Debts: This means that any existing public debt, charge, tax, or dues held in the US can be paid in any form of US legal tender. That includes coins, small bills, etc.

Feel free to walk into any courthouse or treasury office and pay a parking ticket in pennies, pay your property taxes in coins and small bills, and dump a truck bed full of nickels in front of the IRS Headquarters building. It is all legal payment and must be accepted by officials.

Private Transactions: The legal tender law is a federal law and does not apply to private businesses, people, or organizations. These entities are able to make their own financial policies regarding the form of payment. This is why stores are able to refuse bills larger than $20 or similar monetary policies when performing transactions. This also only applies to existing debts, not the purchase of goods or services, which no federal law covers. Therefore, a store can refuse to sell you something if you walk in the store with a little red wagon full of pennies.

Private transactions can also require payment in the form of proprietary tokens, coupons or other non-legal tender payments. A good example of this would be a bus or subway token, or tokens for slot machines.

Contradicting Example? Even though the law states that all debts can be settled in legal tender, Michael Powell, a Texas resident, was held in contempt of court and fined for paying a $1000 court settlement in pennies. The payment had to be made to an individual who won a court judgment against him. The $1000 assessment was due by a certain date and Powell made the payment in its entirety 2 days early – in pennies. He was sued and fined an additional $533 to pay for the time, expense, and legal fees the other person had to go through to cash his pennies and take him back to court.

Powell would probably have had his $533 fine reversed if he hadn’t told the judge at the appeals court his reason for paying in pennies – Powell answered that he wanted “to make a hardship upon [Tarlton, the person suing him],” for whom he had no respect “in any shape, form or fashion.”

He probably would have won on a further appeal, but how far do you really want to go to win back $500? He would have had to pay more than that in lawyer fees and court costs.

Conclusion: Stores can make their own policy in terms of which form of payment to accept, but public enterprises must accept any form of legal tender. Feel free to pay your taxes, court assessments, or other public debts in assorted coins and bills. But also be prepared to put up with some ticked off people if they have to count out every coin and dollar bill. Oh, and if you try this with the IRS, don’t be surprised if you get audited for the rest of your life! 😉

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About Ryan Guina

Ryan Guina is the founder and editor of Cash Money Life. He is a writer, small business owner, and entrepreneur. He served over 6 years on active duty in the USAF and is a current member of the IL Air National Guard.

Ryan started Cash Money Life in 2007 after separating from active duty military service and has been writing about financial, small business, and military benefits topics since then. He also writes about military money topics and military and veterans benefits at The Military Wallet.

Ryan uses Personal Capital to track and manage his finances. Personal Capital is a free software program that allows him to track his net worth, balance his investment portfolio, track his income and expenses, and much more. You can open a free account here.

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  1. 54ndm4n says

    If the law states, “United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues.”

    Then how come what is printed on our money from the Federal Reserve say, “THIS NOTE IS LEGAL TENDER FOR ALL DEBTS, PUBLIC AND PRIVATE”?

    WHICH IS IT???

    And what about the law that says if they refuse payment, you are not obligated to pay anything further?

  2. William Dwyer says

    Used car salesman jerks me around from day one, sells me a Chevy he bought from a junkyard and did body work on it. When the vin comes up at DMV as a salvage title in another state he begs forgiveness for getting screwed at a bad auction and gives me an unsafe Buick with faulty door latches their mechanic told me I could fix myself with JB Weld. Took it to a GM dealership and got an estimate of over $400 to replace left front and right rear door handles. My 4 months pregnant stepdaughter was in the right rear seat with her mom and me when we turned left and the door swung wide open, leaving the seat belt alone to keep her inside the car. Right before my 6th payment on a 4 year loan, he sends me a letter stating effective immediately all credit card and debit card transactions are now subject to a $2.00 convenience fee. I call his legal department to ask how I can avoid the fee and they tell me to submit my payment in legal tender cash or personal check. Next Wednesday when my payment is due, if he wants to play nickel and dime games with fees that weren’t on the table when I signed the contract, he will get paid in nickels and dimes. If he refuses to accept them, I can and will have a judge tear up the contract and throw it in his face.

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