Form 720, or the Quarterly Federal Excise Tax Return, is used to calculate and make excise tax payments by companies that sell taxable goods or provide taxable services. Because of this, Form 720 must be filed by any business or entity dealing in goods subject to federal excise taxes.
Are you a business owner? If so, then you need to know about Form 720. This particular tax form is dedicated to businesses that are subject to excise taxes on goods and services, and the IRS requires one to be filed four times per year.
Keep reading to learn how Form 720 works and what it means for your business.
What is an excise tax?
Excise tax is a federal tax imposed on the production, import, sale, or consumption of specific commodities and/or services. Goods subject to excise taxes can be produced in the U.S. or imported from other countries. Some goods and services subject to federal excise taxes include diesel, salon services, heavy machinery, some specified health insurance policies, alcoholic beverages, some phone services, and airline tickets.
Excise taxes exist so that buyers do not have to pay a sales tax on certain items. Instead, the federal government requires that manufacturers do. Excise taxes usually apply to products and industries that are considered to cause health risks (like tobacco tax) or environmental hazards (such as gasoline).
What is Form 720?
Form 720 Quarterly Federal Excise Tax Return is a form required by the IRS to report and pay excise taxes on certain goods and services. The form is made up of three parts where the filer lists any goods or services subject to excise tax.
In addition to those sections, filers must also complete Schedule A, Schedule T, and Schedule C claims. Here’s a breakdown of those claims.
- Schedule A. This part of IRS Form 720 reports on a business’s net tax liability. If you do not have a liability in Part I but have one in Part II, you still need to fill out Schedule A.
- Schedule T. You only need to worry about this part of IRS Form 720 if your business produces gasoline, diesel fuel, or aviation fuel. Schedule T reports on the total taxable amount of fuel received or given in a two-party exchange.
- Schedule C. This part is also only for businesses that deal with types of fuel. However, only certain types of fuel can qualify a business for a Schedule C claim. Those types will be listed on the form, the beginning of which you can see below.
Who needs to file Form 720?
Businesses that sell goods or provide services subject to a federal excise tax need to file Form 720 on a quarterly basis. They must report on their total sales for the quarter being reported.
How do you know when you need to file?
You must always file Form 720 when you have collected an excise tax during the current quarter. You’ll also have to file this form if you were responsible for collecting excise taxes during previous quarters throughout the year and have yet to file a final excise tax return. Failing to file under either of these two circumstances can result in penalties from the IRS.
When throughout the year do you need to file?
Each year, the last day you have to file for each calendar quarter is April 30, July 31, October 31, and January 31. If your quarterly end date falls on a Saturday, Sunday, or legal holiday, the due date will be delayed until the next business day. Although federal holidays don’t usually affect filing dates, it doesn’t hurt to try and get all your forms filed as soon as possible each quarter to avoid potential complications and/or paying penalties.
|First quarter||January, February, March||April 30|
|Second quarter||April, May, June||July 31|
|Third quarter||July, August, September||October 31|
|Fourth quarter||October, November, December||January 31|
Note that although you need to file Form 720 every quarter, you must also estimate and pay your excise taxes semi-monthly. This means that you need to submit your estimated payments once in the first half of the month (between the 1st and 15th of the month) and once in the second half (from the 16th to the end of the month). You can make your semi-monthly payment through an electronic transfer (aka an ACH deposit).
How to complete Form 720
If you need a little guidance when filling out Form 720, take a look at our step-by-step guide.
1. Gather all necessary documentation
Before you begin filling out your form, collect all necessary accounting documents for your business. This will help streamline the process of filling out the form later on. Next, fill out your basic business information (your name, address, employer identification number, end date of the quarter you’re filing for, etc.).
Make sure all your information is up to date each time you fill out this form. This includes any address changes or new identification information that you haven’t yet reported to the IRS.
2. Calculate your excise tax
Once you’ve gathered your accounting documents and entered your basic information, you’ll need to calculate the appropriate excise taxes in parts I and II of the form.
Part I lists the specific businesses and products that are subject to excise taxes, which includes environmental taxes, fuel taxes, and manufacturers taxes.
If your business is listed in Part I, proceed to fill out the Schedule A section of Form 720. If your business is not listed in Part I, you can move on to Part II.
Remember, only complete this section if your business has a tax liability mentioned in Part I. If you have any alternative-method taxes, you’ll have to fill out the first and second sections of Schedule A. Otherwise, just list your business’s net tax liability for each semi-monthly period.
Filling out Part II is similar to the process used to complete Part I. Part II will have a different list of businesses and products, so simply select the ones that apply to you and add up your taxes accordingly.
3. Complete Schedules T and C if needed
Before moving on to Part III, check if you need to fill out Schedule T or C. As mentioned above, Schedules T and C are designated for businesses that deal with fuel.
As mentioned above, you only need to complete Schedule T if your business is involved in selling or producing certain fuels. This includes diesel fuel, gasoline, kerosene, or aviation gasoline.
You’ll need to fill out Schedule C if your business handles certain fuel types or tire types. However, as we discussed earlier, certain companies can make a Schedule C claim if the fuel they produce falls under specific categories, such as fuel used on a farm or in a qualified local bus.
If that applies to you, make sure you fill out the appropriate boxes in Schedule C with the tax rate, gallons of fuel, and case number.
4. Finish Form 720 Part III
Part III is straightforward: Just add up the taxes you calculated in Parts I and/or II. If you filled out a Schedule C, you’ll need to add up those claims in Part III as well. The rest of this portion is for calculating your excise tax deposits for the quarter.
How to file Form 720
You can file Form 720 by mail or electronically. Though snail mail is the more traditional route for business taxes, the IRS actually encourages companies and manufacturers to file electronically.
If you owe the IRS money after filing Form 720, you have a few options for payment. It depends on how you file, but generally you can pay with a check, direct debit, or through a money order. Be sure to check which methods of payment are appropriate depending on how you file.
Form 720 federal excise tax return and the PCORI
As mentioned above, Form 720 can also apply to some health insurance plans. This might sound confusing. After all, Form 720 deals with excise taxes, and health insurance doesn’t quite match with the other industries subject to this type of tax.
The short answer is that excise taxes on health insurance help cover the cost of widespread coverage. The long answer involves the Patient-Centered Outcome Research Institute (PCORI).
What is the PCORI?
The Patient-Centered Outcome Research Institute is an American non-profit institute that was created through the Patient Protection and Affordable Care Act. Its purpose is to fund comparative studies to help improve clinical research in the United States and keep health insurance costs down. So how does this fit in with Form 720 and health insurance?
Well, some health insurers must file Form 720 to report the PCORI fee. The big difference is that when health insurers file Form 720, they need only do so annually rather than quarterly. So, if you’re a health insurer that fits under this category, be prepared to fill out Form 720 using this guide.
Is there a penalty for filing Form 720 late?
Form 720 calls for higher late-filing penalties than regular tax returns. Usually, the penalty is around 5% of the unpaid taxes for each month (or part of the month) that a return is late. However, the penalty for filing your Form 720 late is 15% of the amount of total tax you should have reported on your return for each additional month (or part of the month) that you did not file.
Can Form 720 be filed annually?
Form 720 can only be filed annually if you’re a health insurer that must file the form for PCORI fees. Otherwise, as a business owner handling applicable goods or services, you must file Form 720 every quarter.
Who is exempt from the PCORI fee?
Some governmental programs such as Medicare and Medicaid are exempt from PCORI fees and do not need to file a Form 720. That said, foreign insurers are not exempt from PCORI fees, so make sure you carefully review whether PCORI fees apply to you.
- Form 720 applies to businesses dealing in goods and/or services subject to excise taxes.
- You need to file Form 720 quarterly, but you need to pay your excise taxes twice per month.
- You can file electronically or through traditional mail. How you file may also determine how you pay the IRS any necessary funds.
- Form 720 also applies to health insurance companies, but not government-funded aid programs. As a health insurer, you only need to file Form 720 annually to pay PCORI fees.
View Article Sources
- About Form 720, Quarterly Federal Excise Tax Return — IRS
- An Overview of Excise Tax — IRS
- Homepage — Patient-Centered Outcome Research Institute
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