Excise Tax FAQ
What is an excise tax?
The IRS defines excise tax as a tax that is imposed on the sale of specific goods or services or on certain uses. While that definition is broad, they do state that federal excise tax is generally imposed on things like the sale of fuel, heavy trucks, and tractors, tires, tobacco, airline tickets, and alcohol. These taxes are charged within the US and not internationally. While the federal government is most associated with excise taxes, they can also be charged by state and local governments.
Who pays an excise tax?
Businesses generally pay excise taxes. Businesses that are subject to excise taxes use IRS form 720 to file quarterly reports to the IRS on the taxes due. When a business files form 720 they also make payments for that quarter of excise taxes due. While the business directly pays the tax, the cost may be indirectly passed on to the consumer.
This isn’t always the case though. For example, when you purchase an airline ticket, you often are paying the excise tax yourself at the point of purchase. Then the airline, or sometimes a third party, collects that tax and pays it to the IRS.
Excise Taxes and Retirement Accounts
Another example of consumers paying excise tax is on some retirement account activities. For example, you may be aware that if you withdraw money from an IRA prior to age 59.5, you’re assessed a 10% tax as a penalty – this tax is an excise tax.
If you have excess contributions to an IRA account that aren’t corrected prior to the deadline, a 6% excise tax applies to the excess amount. RMDs, or required minimum distributions, are another area where retirement accounts could cause you to end up paying an excise tax. If you neglect to take the RMD amount, you may incur a 50% excise tax penalty. Working with both a financial advisor and tax professional can help you plan for these events to avoid paying unnecessary taxes.
When do you file excise taxes?
A business should file excise taxes to the IRS quarterly, using form 720, on the following schedule:
April 30th for the first quarter
July 31st for the second quarter
October 31st for the third quarter
January 31st for the fourth quarter of the prior year
When any of the above dates fall on a weekend or Federal holiday, the due date is moved to the next business day.
How do you file excise taxes?
While the IRS does accept a paper return for excise taxes, using form 720, they would prefer your business to file electronically when possible. To make this process easier, the IRS has an online program called the Excise Tax e-File and Compliance Program where you can electronically submit form 720, in addition to other excise tax forms such as 2290 for Heavy Highway Vehicle Use and 8849 to Claim for Refund of Excise Taxes Return. There is also a hotline number you can call with questions, 866-699-4096.
When are excise taxes imposed?
Excise taxes are often imposed at either the point of sale, either by the manufacturer or retailer or at the time of use by the manufacturer or consumer. They may also be imposed upon import. The IRS specifies detailed information on excise taxes, including what triggers an excise tax, in publication 510. Excise taxes may be charged by percentage, known as ad valorem, or as a set tax, also known as a specific excise tax. Ad valorem excise taxes are based upon the value, and these are the types of excise tax often associated with airline tickets and heavy trucks.
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