diff --git a/src/components/MoneyRequestConfirmationList.tsx b/src/components/MoneyRequestConfirmationList.tsx
index 40cad1f662bb..859337326957 100755
--- a/src/components/MoneyRequestConfirmationList.tsx
+++ b/src/components/MoneyRequestConfirmationList.tsx
@@ -866,7 +866,7 @@ function MoneyRequestConfirmationList({
             if (enabledTags.length !== 1 || getTag(transaction, index)) {
                 return;
             }
-            updatedTagsString = insertTagIntoTransactionTagsString(updatedTagsString, enabledTags.at(0)?.name ?? '', index);
+            updatedTagsString = insertTagIntoTransactionTagsString(updatedTagsString, enabledTags.at(0)?.name ?? '', index, policy?.hasMultipleTagLists ?? false);
         });
         if (updatedTagsString !== getTag(transaction) && updatedTagsString) {
             setMoneyRequestTag(transactionID, updatedTagsString);
diff --git a/src/libs/IOUUtils.ts b/src/libs/IOUUtils.ts
index 3fdffbe33c24..d16b091f5832 100644
--- a/src/libs/IOUUtils.ts
+++ b/src/libs/IOUUtils.ts
@@ -162,9 +162,14 @@ function isValidMoneyRequestType(iouType: string): boolean {
  * @param transactionTags - currently selected tags for a report
  * @param tag - a newly selected tag, that should be added to the transactionTags
  * @param tagIndex - the index of a tag list
+ * @param hasMultipleTagLists - whether the policy has multiple levels tag
  * @returns
  */
-function insertTagIntoTransactionTagsString(transactionTags: string, tag: string, tagIndex: number): string {
+function insertTagIntoTransactionTagsString(transactionTags: string, tag: string, tagIndex: number, hasMultipleTagLists: boolean): string {
+    if (!hasMultipleTagLists) {
+        return tag;
+    }
+
     const tagArray = getTagArrayFromName(transactionTags);
     tagArray[tagIndex] = tag;
 
diff --git a/src/pages/Debug/DebugTagPicker.tsx b/src/pages/Debug/DebugTagPicker.tsx
index cd16b37941fa..209f86777744 100644
--- a/src/pages/Debug/DebugTagPicker.tsx
+++ b/src/pages/Debug/DebugTagPicker.tsx
@@ -31,17 +31,18 @@ function DebugTagPicker({policyID, tagName = '', onSubmit}: DebugTagPickerProps)
     const [policyTags] = useOnyx(`${ONYXKEYS.COLLECTION.POLICY_TAGS}${policyID}`, {canBeMissing: true});
     const policyTagLists = useMemo(() => getTagLists(policyTags), [policyTags]);
 
+    const [hasMultipleTagLists] = useOnyx(`${ONYXKEYS.COLLECTION.POLICY}${policyID}`, {canBeMissing: true, selector: (policy) => policy?.hasMultipleTagLists});
     const updateTagName = useCallback(
         (index: number) =>
             ({text}: ListItem) => {
                 const newTag = text === selectedTags.at(index) ? undefined : text;
-                const updatedTagName = insertTagIntoTransactionTagsString(newTagName, newTag ?? '', index);
+                const updatedTagName = insertTagIntoTransactionTagsString(newTagName, newTag ?? '', index, hasMultipleTagLists ?? false);
                 if (policyTagLists.length === 1) {
                     return onSubmit({text: updatedTagName});
                 }
                 setNewTagName(updatedTagName);
             },
-        [newTagName, onSubmit, policyTagLists.length, selectedTags],
+        [newTagName, onSubmit, policyTagLists.length, selectedTags, hasMultipleTagLists],
     );
 
     const submitTag = useCallback(() => {
diff --git a/src/pages/iou/request/step/IOURequestStepTag.tsx b/src/pages/iou/request/step/IOURequestStepTag.tsx
index 85a31f546810..7eb29c7f1fdb 100644
--- a/src/pages/iou/request/step/IOURequestStepTag.tsx
+++ b/src/pages/iou/request/step/IOURequestStepTag.tsx
@@ -106,7 +106,7 @@ function IOURequestStepTag({
             updatedTag = tagParts.join(':');
         } else {
             // Independent tags (fallback): use comma-separated list
-            updatedTag = insertTagIntoTransactionTagsString(transactionTag, isSelectedTag ? '' : searchText, tagListIndex);
+            updatedTag = insertTagIntoTransactionTagsString(transactionTag, isSelectedTag ? '' : searchText, tagListIndex, policy?.hasMultipleTagLists ?? false);
         }
 
         if (isEditingSplit) {
diff --git a/tests/unit/IOUUtilsTest.ts b/tests/unit/IOUUtilsTest.ts
index acbf0e0c4408..86da9b2d6ec9 100644
--- a/tests/unit/IOUUtilsTest.ts
+++ b/tests/unit/IOUUtilsTest.ts
@@ -155,19 +155,27 @@ describe('IOUUtils', () => {
 
     describe('insertTagIntoTransactionTagsString', () => {
         test('Inserting a tag into tag string should update the tag', () => {
-            expect(IOUUtils.insertTagIntoTransactionTagsString(':NY:Texas', 'California', 2)).toBe(':NY:California');
+            expect(IOUUtils.insertTagIntoTransactionTagsString(':NY:Texas', 'California', 2, true)).toBe(':NY:California');
         });
 
         test('Inserting a tag into an index with no tags should update the tag', () => {
-            expect(IOUUtils.insertTagIntoTransactionTagsString('::California', 'NY', 1)).toBe(':NY:California');
+            expect(IOUUtils.insertTagIntoTransactionTagsString('::California', 'NY', 1, true)).toBe(':NY:California');
         });
 
         test('Inserting a tag with colon in name into tag string should keep the colon in tag', () => {
-            expect(IOUUtils.insertTagIntoTransactionTagsString('East:NY:California', 'City \\: \\:', 1)).toBe('East:City \\: \\::California');
+            expect(IOUUtils.insertTagIntoTransactionTagsString('East:NY:California', 'City \\: \\:', 1, true)).toBe('East:City \\: \\::California');
         });
 
         test('Remove a tag from tagString', () => {
-            expect(IOUUtils.insertTagIntoTransactionTagsString('East:City \\: \\::California', '', 1)).toBe('East::California');
+            expect(IOUUtils.insertTagIntoTransactionTagsString('East:City \\: \\::California', '', 1, true)).toBe('East::California');
+        });
+
+        test('Return single tag directly when hasMultipleTagLists is false', () => {
+            expect(IOUUtils.insertTagIntoTransactionTagsString('East:NY:California', 'NewTag', 1, false)).toBe('NewTag');
+        });
+
+        test('Return multiple tags when hasMultipleTagLists is true', () => {
+            expect(IOUUtils.insertTagIntoTransactionTagsString('East:NY:California', 'NewTag', 1, true)).toBe('East:NewTag:California');
         });
     });
 });