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. dimes says

    My husband pays fast food purchases with coins only, and I pay parking fees with coins only. It’s a good way to get rid of them, unless you drop them when handing them to the cashier.

  2. Ryan says

    I like to use my coins too. I have some friends that have giant coin jars full of money. And they wonder why they never have any cash!

  3. Ryan says

    Its a little more complicated than that, or at least the question is. A person can refuse to serve you for almost any reason they want, but let us just say that the store has already levied a debt on you. say you were in a restaurant and you had a coffee, yet this was a sit-down place so you haven’t payed yet, at the point at which you go to the register can they still refuse your 100 dollar bill. I am not sure but I think not, for while a 7/11 might be able to refuse you 100, because you have yet to purchase anything and therefore have incurred n0 debt, in the restaurant however, you incur debt every time you buy something. Just thinking.

  4. j w more says

    I have one question left unanswered in this thread. What happens to the debt if the collecting party refuses the legal tender? In other words is the debt considered “Paid in Full” or is the debt considered still owed?

  5. SKP says

    Can a state refuse to take cash? In MA the state refuses to take any cash it requires draft or check or credit card. How can this be legal?

  6. David Sepulveda says

    Is there a Federal Law that states a debt must be canceled if reasonable payments attempts are refused by the Creditor?

    • Ryan says

      David, if you mean some sort of payment plan or other arrangement, then no, not that I am aware of. Many creditors will work with borrowers by coming up with arrangements such as a payment plan, reduced minimum payments, or reduced interest rates, but they are not required to do so. Most debts are legal contracts and lenders are not normally required to modify those contracts to favor borrowers (in fact, many contracts have stipulations that protect the lenders, such as late payments, penalties, fees, interest rate hikes, etc.).

      If, with your question, you are asking if a debt can be canceled if the lender refuses a legal payment, again, I don’t think so. Most lenders have a list of payment types they accept, such as credit cards, checks, bank drafts, money transfers, etc. Most credit card companies don’t accept payments like cash or traveler’s checks, so I don’t think you can have your credit card debt canceled if they refuse payment for something like that.

  7. bratz says

    § 3-603. TENDER OF PAYMENT.

    * (a) If tender of payment of an obligation to pay an instrument is made to a person entitled to enforce the instrument, the effect of tender is governed by principles of law applicable to tender of payment under a simple contract.
    * (b) If tender of payment of an obligation to pay an instrument is made to a person entitled to enforce the instrument and the tender is refused, there is discharge, to the extent of the amount of the tender, of the obligation of an indorser or accommodation party having a right of recourse with respect to the obligation to which the tender relates.
    * (c) If tender of payment of an amount due on an instrument is made to a person entitled to enforce the instrument, the obligation of the obligor to pay interest after the due date on the amount tendered is discharged. If presentment is required with respect to an instrument and the obligor is able and ready to pay on the due date at every place of payment stated in the instrument, the obligor is deemed to have made tender of payment on the due date to the person entitled to enforce the instrument.

  8. JotaTe says

    At 3:45 p.m. last Friday, October 8, 2010, I tried to pay my Coconino County property tax in the form of 500 $1 bills, 500 $1 coins and $13.44 in pennies. The money was in a sealed bank bag and could not be seen. Nancy, the clerk at the Tax Assessor’s office assumed I was paying in all pennies because I had paid a different tax of $5.72 with pennies. She refused to accept my bag of money. She contacted her supervisor who apparently transferred the matter to Cheri Kiefer, Chief Deputy Treasurer, who also refused to accept my bag of money claiming they did not have the time to count all of my pennies. I asked her why she thought it was all pennies. She did not have a good answer. However, there were four women standing around doing absolutely nothing. Anyone could have counted the money I tendered in little time. As I understand it since I tendered payment in US legal tender and it was not accepted my tax bill is now canceled. Is that true? If so which law do I need to be aware of to back this up later.

    • Ryan says

      JotaTe, I wouldn’t make the assumption that your tax bill is canceled. In fact, I would go back and make sure that they take your money, otherwise you may find yourself due for penalties or other problems. The thing is, taxes and tax obligations don’t just go away, and unless you have proof they refused your payment, they will likely mark your situation as overdue or “failure to pay,” which could expose you to penalties, or worse – even though you made an honest attempt to pay your taxes.

      I recommend going back and paying your taxes, and insisting they take the money. If they refuse, ask them to show a policy that states they will not accept cash or coins as payment for taxes. If they continue to refuse, then request to speak with a supervisor and also request they give you a written and signed statement on official letterhead stating they refused to accept your payment for taxes. Also request they notarize the signed letter (the county tax office should have a notary public available). Then, get a lawyer, just in case.

      • Ira Dernotsei says

        Simple, take your iPhone. Count the cash, put it in the envelope or container, capturing the whole thing on video. Walk up to the counter, and cordially present payment, filming the entire thing. Put your iPhone in your pocket and turn on video just before you walk in so that the camera doesn’t make the counter girl nervous or freak out. When she refuses, state that you have tendered payment. You might print out copies of 31 USC §5103 and UCC §3-603 and present those as well. Having presented your payment, turn and walk away. Be bold, you’ve tendered your obligation. If you want a receipt, bring an self-addressed and stamped envelope and request that they place the receipt in the envelope when they’ve gotten a grip on how Federal Currency Laws work. If they mail you back the cash, great, you’re that much richer. If they mail you a receipt, great, you’ve discharged your tax obligation and made a peaceful non-violent protest that you can tell your grand children about and that the county workers can grumble about with their spouses that night at dinner.

  9. 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?

  10. 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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