A simple guide to federal excise tax
A simple guide to federal excise tax
Federal excise taxes are special taxes on select goods services and activities. If you sell fuel operate flights bill voice services produce tobacco or import certain chemicals you may be part of the excise system. This guide answers what is federal excise tax how it works and when to file so you can stay compliant without guesswork.
What is federal excise tax
Federal excise is a tax that targets a narrow base rather than income. Lawmakers use it to fund programs shape behavior or cover the cost of using shared systems like the airspace or highways. Some excise taxes are built into the price that manufacturers or service providers charge and others are paid directly by users. Common examples include the air transportation excise tax communications excise tax fuel excise firearms tobacco and the Patient Centered Outcomes Research fee known as the pcori fee. According to the Congressional Budget Office these taxes account for about 3 percent of federal receipts in a typical year.
Where excise shows up
- At the pump a fuel supplier passes a cents per gallon charge that supports highway programs
- Inside an airline ticket you see federal charges that carriers collect with the fare
- On a phone bill a line for federal communications excise tax may appear
How excise taxes work
Excise taxes can be per unit or ad valorem. Per unit means a set amount like cents per gallon. Ad valorem means a percent of the sale price. Either way the statute tells you who collects the money and when the liability arises. The collector can be a manufacturer a carrier a reseller or a service platform depending on the transaction.
Returns for many federal excise items are filed on Form 720. The form groups taxes by category and it captures quarterly totals by line. You report collections for the period then compute net liability after adjustments. You also complete Schedule A for semimonthly periods if required. Good records are essential because liability often depends on facts like routing use and exemptions.
Here is a simple view of common filers and where they report:
| Business type | Typical tax | Where to report | Filing cadence |
|---|---|---|---|
| Passenger airlines and charter operators | Air transportation excise | Form 720 Part I | Quarterly |
| VoIP or voice service providers | Communications excise | Form 720 Part I | Quarterly |
| Fuel distributors and importers | Fuel related excise | Form 720 Part I | Quarterly |
| Self insured health plans | PCORI fee | Form 720 second quarter | Annually |
When to file and pay
Form 720 is due the last day of the month after the quarter ends. That means April 30 July 31 October 31 and January 31. You can pay through EFTPS or by electronic funds withdrawal when you e file. Keep invoices contracts usage logs and reconciliation reports that support each line. If you discover an error you can amend with Form 720 X or request a credit or refund on Form 8849 when allowed.
For the pcori fee the due date is generally July 31 for the plan year that ended in the prior calendar year. The amount adjusts for inflation each year and the IRS publishes the rate in a notice. See the latest IRS guidance for PCORI so you apply the correct rate to each covered life.
2025 trends and strategic lessons
- Superfund chemical excise taxes were reinstated under recent law and they appear on Form 720 which means more filers have quarterly exposure
- Electronic filing reduces math errors and speeds acknowledgments which saves time at quarter close
- More finance teams map excise lines directly in the ERP so values flow into the return without manual rework
A practical lesson from carriers and voice platforms is simple. Treat excise as part of your order to cash process not just a quarter end task. Tag taxable products in your catalog make taxes visible on invoices and reconcile collections to deposits each month. This reduces rush work and it avoids surprises during audits.
A quick example
An airline sells a domestic ticket. The system calculates the applicable federal charges and collects them with the fare. The airline remits those amounts and reports totals on Form 720 for the quarter. If a refund is issued the adjustment carries into the return so the net liability matches cash activity. The same idea applies to a VoIP provider that charges a communications excise line on monthly bills.
Why file with E File Excise 720
E File Excise 720 is the easy way to prepare and submit Form 720 online. The platform is IRS authorized secure and built for teams that value speed and accuracy. You get a free account simple dashboard navigation and no software download. You can prepare 720 X amendments and Form 8849 claims in the same place which keeps your history in one account. If you work on pcori fee filings our workflow guides you through covered lives and payment so you meet the deadline with confidence.
Frequently asked questions
What is federal excise tax on air travel?
It is a set of federal charges on passenger and cargo transportation by air that airlines collect and report on Form 720.
Who files the pcori fee?
Sponsors of applicable self insured health plans file and pay the pcori fee using the second quarter Form 720 by the deadline.
How can I determine whether my service is taxable?
Review your product map and read the
IRS instructions for Form 720.
When in doubt speak with a tax advisor or contact eFileExcise720 support.
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