What is a Federal Excise Tax

Excise taxes are government-imposed taxes on specific goods and services, such as motor fuel, airline tickets, alcohol,tobacco, etc., These taxes are levied within a country's borders rather than internationally. Typically, businesses are responsible for paying excise taxes, and they often pass these costs onto consumers by incorporating them into the final retail price. 

Merchants pay excise taxes to wholesalers, who then factor them into the product pricing. As a result, consumers may not always see the direct cost of excise taxes, but they experience it indirectly through higher prices.

What are the Types of Federal Tax?

Federal excise taxes are categorized into different types based on the nature of the goods or services being taxed, including

Environmental Excise Tax: 

Environmental Excise Tax is a tax levied on activities or behaviours that contribute to environmental pollution. The primary goal of this tax is to discourage environmentally harmful practices and reduce the overall environmental impact. 

For example, businesses involved in the production or distribution of petroleum products, chemicals, or other pollutants are subject to environmental excise taxes. These taxes are designed to incentivize companies to adopt cleaner practices and technologies, ultimately leading to less environmental damage.

Communication and Air Transportation Excise Taxes: 

Communication and Air Transportation Excise Taxes are levied on airlines and their customers, covering both passenger and cargo transport. These taxes apply to airline tickets and shipping services, with the costs usually included in the ticket price or shipping fee

Fuel Excise Tax:

Fuel Excise Tax is imposed on any taxable fuel, including diesel, diesel-water emulsion, kerosene, gasoline, and alternative fuels. These fuels are taxed at rates specified by the IRS.

Retail Excise Tax:

Retail Excise Tax is similar to a communication tax but is specifically applied to certain heavy vehicles. This tax is imposed on trailers, trucks, tractors, and semi-trailer chassis and bodies that exceed specific weight thresholds.

Ship Passenger Excise Tax: 

Ship Passenger Excise Tax is applied to commercial ships when passengers travel for one or more days with accommodations. This tax is required for each passenger on such voyages.

Foreign Insurance Excise Tax:

Foreign Insurance Excise Tax is imposed on foreign insurance policies. When paying the premium, 1% of the premium amount is added as a Foreign Insurance Excise Tax.

Manufacturer Excise Tax:

Manufacturer Excise Tax is levied on manufacturers, importers, or producers of specific products such as tires, gas guzzlers, and vaccines. These entities are primarily responsible for paying this tax.

Other Excise Tax:

Other Excise Taxes include various specific taxes, such as:

• PCORI 

• Sports Fishing Equipment Tax

• Indoor Tanning Services Tax

• Inland Waterways Fuel Use Tax

• LUST Tax on Inland Waterways Fuel Use

Miscellaneous Excise taxes:

Miscellaneous Excise Taxes refer to taxes on products like tobacco, alcohol, and firearms, which are handled separately from other excise taxes. These products follow distinct protocols and filing methods regulated by the Alcohol and Tobacco Tax and Trade Bureau (TTB).

How To File Federal Excise Tax:

Federal excise tax is generally filed using Form 720 on a quarterly basis. There are two filing methods:

1. Manual: Complete Form 720 manually and mail it to the IRS.

2. Online: File using an IRS-approved online portal.

It's important to file before the form 720 due dates to avoid penalties. Note that all tax categories except alcohol and tobacco use Form 720; alcohol and tobacco have separate filing procedures.

Smart Way to File Federal Excise Tax:

The IRS recommends online filing for its convenience and efficiency. For a smooth experience, use an IRS-approved online portal like eFile720. Online filing ensures a hassle-free process and helps you avoid potential issues.

WRAP:

After reading this blog, you will have a clear understanding of federal excise tax and its various types. You'll also gain detailed insights on how to file federal excise tax efficiently and smartly