Blog Details

Excise tax basics for Form 720 filers

Every quarter, more than 100,000 businesses and nonprofit organizations must calculate and report federal excise tax to the IRS. If you are new to Form 720 or still wrestling with paper returns, understanding the fundamentals can save hours of frustration and keep costly penalties at bay. This guide breaks down excise tax essentials, explains how Form 720 works, and shows you why electronic filing is quickly becoming the standard for hassle-free compliance.

What Is an Excise Tax?

An excise tax is a federal levy on specific goods, services, or activities rather than on income or general sales. The government uses it to influence behavior (for example, taxes on tobacco) and to fund infrastructure or environmental programs (for example, fuel and ozone-depleting chemical taxes). The Internal Revenue Code lists dozens of excise taxes, most of which are reported on Form 720.

According to the U.S. Treasury, excise taxes generated $96.1 billion in fiscal year 2024. Because these taxes target narrow industries—air transportation, indoor tanning, firearms, and more—the IRS relies on accurate quarterly filings to track revenue and administer credits.

Introducing Form 720

Form 720, the Quarterly Federal Excise Tax Return, is the primary vehicle for reporting and paying excise tax. It contains three core parts:

• Part I covers environmental, communications, air transportation, and fuel taxes.

• Part II covers manufacturers, retail, ship passenger, and indoor tanning taxes.

• Schedule A, Schedule T, and Schedule C capture supporting calculations, mileage, and claims for credits or refunds.

If you collected any tax listed in the Form 720 instructions during a calendar quarter, you must file—even if no tax is ultimately due after credits.

Who Must File?

You likely need Form 720 if your organization fits any of these profiles:

• Fuel suppliers and wholesalers that sell propane, diesel, gasoline, or kerosene.

• Telecommunications providers that bill long-distance or teletype services.

• Manufacturers, producers, or importers of certain heavy trucks, trailers, tires, or sport-fishing equipment.

• Airlines and charter operators that collect passenger ticket taxes or segment fees.

• Indoor tanning salons charging fees for UV tanning.

The IRS Instructions for Form 720 (Rev. January 2025) provide a full list of taxable activities. When in doubt, check the instructions or consult a tax professional.

Quarterly Calendar and Payment Due Dates

Form 720 is due on the last day of the month following the end of each quarter. Excise taxes are technically considered deposited throughout the quarter, but the return reconciles those deposits and final liability.

For certain “deposit taxes” such as fuel and air transportation taxes, semimonthly deposits are required once liability exceeds $2,500 during a quarter. Electronic Federal Tax Payment System (EFTPS) is mandatory for deposits.

Snapshot of Common Excise Taxes on Form 720

Rates change periodically, so always reference the latest IRS instructions or Pub. 510.

Key Data You Need Before Sitting Down to File

Collecting accurate figures early prevents last-minute scrambling.

• Total gallons, pounds, or sales amounts subject to each tax.

• EFTPS deposit confirmation numbers and dates.

• Credit documentation, for example, export certificates or ultimate vendor statements for fuel.

• Employer Identification Number (EIN) and business address that match IRS records.

• Banking information for electronic payment or refund.

Tip: Keep a quarterly folder (digital or physical) where you save invoices, bills of lading, and prior-period adjustments as they arrive. Reconciliation becomes far easier on day 90 than trying to piece together three months of activity on day 1.

Avoiding Common Form 720 Errors

The IRS still rejects thousands of returns each year for preventable mistakes:

• Mismatched EIN or name control compared with IRS records.

• Coding taxes on the wrong line (for example, using code 64 for cargo instead of passenger air segment fees).

• Omitting Schedule C to support claimed credits, triggering correspondence audits.

• Math discrepancies between Parts I or II totals and Schedule A.

• Late filing after missing the quarterly deadline, which can cost five percent of unpaid tax per month, up to 25 percent.

Electronic filing software runs automatic validation checks that virtually eliminate these issues.

Why E-File Is the New Normal

The IRS encourages electronic filing for all excise tax filers and will eventually mandate it for many businesses once efile form 720 becomes fully integrated into the Modernized e-File (MeF) platform.

Benefits of choosing an IRS-authorized provider such as eFileExcise720 include:

• Secure web-based access—no software download or server maintenance.

• Real-time error diagnostics that flag missing schedules or math mismatches before transmission.

• Direct integration with EFTPS for one-click electronic payments.

• Automatic generation of Form 720-X for amendments and Form 8849 schedules for refunds.

• Personalized customer support via chat, phone, or email when questions arise.

The IRS 2024 e-file statistics show that electronic form 720 online filing submissions processed 35 percent faster than paper, resulting in quicker acceptance notices and credit refunds.

Step-by-Step Filing Workflow With eFileExcise720

1. Create your free account at eFileExcise720 using a verified email and EIN.

2. Enter business profile once, then reuse it every quarter.

3. Choose the quarterly period and select applicable tax categories. Smart interview screens appear only for the taxes you need.

4. Upload or key in transaction data, or use bulk import templates for large fuel or airline datasets.

5. Review the summary dashboard, which highlights deposit differences, underpayments, or overpayments.

6. Pay securely through integrated EFTPS or schedule payment for the due date.

7. Transmit to the IRS and receive acceptance confirmation within minutes, plus a printable archive for recordkeeping.

Staying Compliant All Year Long

Quarterly excise tax compliance is not a sprint; it is a year-round discipline.

• Schedule reminders two weeks before each deposit due date, not just the Form 720 deadline.

• Keep an eye on legislative changes. Congress has extended or reinstated certain fuel credits with little notice.

• Use analytics reports inside your eFileExcise720 account to spot unusual spikes in taxable gallons or transaction counts.

• When a prior quarter needs correction, file Form 720-X promptly rather than wait for a notice.

The Bottom Line

Mastering excise tax basics pays dividends in lower penalty risk, smoother cash flow, and cleaner audits. Whether you handle communications services, aviation, retail truck sales, or fuel distribution, Form 720 is the IRS gateway to compliance. Switching to an online solution like eFileExcise720 removes the obstacles of paper returns, adds built-in accuracy checks, and gives you peace of mind that every quarterly box is ticked.

Ready to put theory into practice? Sign up for your free account at eFileExcise720 today and experience how simple excise tax reporting can be.