Depending on what type of business you’re in, you may be required to file Form 720, “Quarterly Federal Excise Tax Form.” Here’s what you need to know about the form and its related payment obligations.
What is a federal excise tax?
Excise taxes are imposed on the sale of specific goods, services, or uses. An excise tax may be levied at the time of:
- Import
- Sale by the manufacturer
- Sale by the retailer
- Use by the manufacturer or consumer
These taxes are separate from income taxes and sales taxes.
Excise taxes have at times been referred to as “sin taxes” when intended to discourage certain behaviors (for example, alcohol and tobacco use). They’ve also been considered user fees (for example, fuel excise taxes reflecting public road use, etc.). Many excise taxes are directed into trust funds for projects related to the taxed product or service, such as highway and airport improvements.
Because excise taxes generally are collected by sellers or manufacturers, it’s up to them to remit the tax payments to the U.S. Department of Treasury.
Note: The federal government isn’t the only authority that imposes excise taxes. You also may be subject to state and local excise taxes.
What is Form 720?
The form is the information reporting return for taxpayers that must pay federal excise taxes. It includes three parts, plus Schedule A (Excise Tax Liability), Schedule T (Two-Party Exchange Information Reporting), and Schedule C (Claims). The form is complicated, so, at least initially, you’d be wise to consult a CPA if you’re required to file it.
Do I need to file Form 720 for my business?
If you own a business that sells a wide variety of goods or services subject to federal excise taxes, you generally must file Form 720. Applicable excise taxes include those on:
- Fuel
- Ozone-depleting chemicals
- Communications
- Air transportation
- Water transportation
- Sport fishing equipment
- Bows and arrows
- Indoor tanning services
You can find the complete list in Parts I and II of Form 720.
Note: You may owe excise taxes that are reported on forms other than Form 720. For example, if you sell alcohol or tobacco, you generally would file TTB Form 5000.24 with the Alcohol and Tobacco Tax and Trade Bureau.
When must my business file Form 720?
You generally must file Form 720 quarterly. The form is due on the last day of the month following the end of the calendar-year quarter:
Quarter Due date
Jan. 1 – March 31 April 30
April 1 – June 30 July 31
July 1 – Sept. 30 Oct. 31
Oct. 1 – Dec. 31 Jan. 31
If the due date falls on a weekend or legal holiday, the filing deadline extends to the next business day.
How do I file Form 720?
It’s probably best to file your form electronically through an IRS-approved software provider. You can mail your return to the address below, but the IRS has reported delays in the processing of paper forms:
Department of the Treasury
Internal Revenue Service
Ogden, UT 84201-0100
How are excise taxes calculated?
Most excise taxes are based on unit sales or weight. For example, the tax on diesel fuel is generally $0.244 per gallon. Arrow shafts are taxed at $0.55 per shaft.
Some excise taxes are based on the sales price. For example, sport fishing equipment is taxed at 10 percent of the sales price, and bows are taxed at 11 percent of the sales price.
Your deposit for a semi-monthly period must be at least 95 percent of that period’s net tax liability, unless the safe harbor rule applies. Your net tax liability for a semi-monthly period is the total liability for the period minus any claims allowed on Schedule C for the period.
Note: Some businesses may qualify for a tax credit for federal fuel excise taxes that were passed on to them. For example, a credit is allowed for certain “nontaxable” uses of fuel, including on a farm or off-highway business use such as on a construction site. Eligible companies that file Form 720 can claim the credit on the form’s Schedule C. Eligible businesses that aren’t required to file the form can claim the credit on Form 4136.
When must my business make its excise tax payments?
While you must file Form 720 quarterly, your payments (or “deposits”) generally are due more often — for every semi-monthly period.. The payment for a semi-monthly period is due by the 14th day following that period — in other words, payments are generally due on the 29th day of a month (for the first semi-monthly period in that month) and the 14th day of the following month (for the second period). For example, your payments for January are due on Jan. 29 and Feb. 14.
(Excise taxes on communications or air transportation may be eligible for an alternative payment schedule.)
Note: If either of those days falls on a weekend or holiday, you must make the payment by the immediately preceding day that isn’t a weekend or holiday. This differs from other IRS deadlines, which typically extend to the following business day.
In certain circumstances, the IRS will allow you to delay payment until you file Form 720. For example, you can pay your excise taxes with your return if your net liability for taxes listed in Part I of Form 720 doesn’t exceed $2,500 for the quarter.
How do I make the payments?
Don’t mail your payments to the IRS — you must deposit them through the Electronic Federal Tax Payment System (EFPTS). EFTPS payments will be made on time only if you initiate the transaction at least one day before they’re due (before 8:00 p.m. Eastern time).
If you miss this deadline, you can make a same-day wire payment via the Federal Tax Collection Service. You’ll need to make arrangements with your financial institution in advance, though, and it will likely charge additional fees.
Note: When you apply for an Employer Identification Number , you’re automatically enrolled in EFTPS. You should receive a separate mailing with instructions for activating your account.
What should I do if I receive a penalty notice?
If you receive a notice after filing a Form 720, you should reply to the notice with an explanation for the issue that triggered the penalty (for example, filing after the applicable deadline). Don’t include your explanation when filing your form. The IRS will then determine if you had “reasonable cause” and, therefore, are excused from the penalty.
What is the Trust Fund Recovery Penalty?
This penalty may apply if communications, air transportation, or indoor tanning services excise taxes are collected but not paid. The penalty equals the full amount of the unpaid tax—in other words, you pay double (plus interest).
The IRS can impose trust fund recovery penalties on all “responsible persons” who are charged with collecting, accounting for, and turning over these taxes, if they acted willfully in not doing so. You act willfully if you know the required actions aren’t occurring.
Who is a “responsible person”?
A responsible person can be:
- An officer or employee of a corporation
- A partner or employee of a partnership
- An employee of a sole proprietorship
- An accountant
- A volunteer director/trustee
- A person who signs checks for the business or otherwise has spending authority for business funds
Can I amend my Form 720?
Yes. You can use Form 720-X to make changes to the excise tax liability you’ve reported in earlier quarters.
