Form 720 2021 Instructions for Federal Excise Tax Compliance

This guide, Form 720 2021 Instructions for Federal Excise Tax Compliance, is written for business owners, bookkeepers, and preparers who handle excise reporting. It explains what the form covers, who must file, and how each section works. If you are new to the process, this overview will help you start with confidence, accuracy, and a clear plan.

Form 720 reports quarterly excise tax liability by IRS number. The form covers fuels, environmental items, communications, air transportation, and indoor tanning services. You will select the correct quarter, complete Parts I–III, and attach schedules when required. Payments and deposits are made electronically through EFTPS, while the return can be filed by paper or through approved e-file providers.

You will learn to map activities to the right lines, compute amounts, and avoid common mistakes. We explain when Schedule A is required for deposits, when Schedule C supports credits, and how Form 6627 feeds environmental items into Part I. We also show how to reconcile deposits in Part III, verify math, and sign correctly. Short checklists, clear tables, and practical tips keep each step manageable, readable, and consistent with IRS instructions.

Understanding Form 720

Form 720 is the quarterly federal excise tax return. It organizes excise taxes by IRS number and reports liability for the period. In the context of Form 720 2021 instructions, the form is the central record linking taxable activities to the correct lines, schedules, and payment rules.

What Form 720 Does

• It reports excise tax liability for the quarter by specific IRS numbers listed in Parts I and II.
  
  
• It consolidates totals in Part III so you can reconcile deposits and determine the amount due or overpayment.
  
  
• It connects required schedules, including Schedule A for deposit reporting, Schedule C for credits, and Form 6627 for environmental taxes.
  
  
• It supports both paper filing and e-file submission through IRS-approved e-file providers.

Which Activities Trigger Excise Tax

• Businesses incur excise liability when manufacturing, importing, selling, or using taxable items such as fuel and specific equipment.
  
  
• Service providers incur liability for taxable services, including communications and air transportation, as defined by IRS numbers.
  
  
• Health plan sponsors may owe the PCOR fee, which is reported on the form for applicable plan years.
  
  
• Environmental activities can trigger fuel taxes and other environmental taxes, which are computed on Form 6627 and then carried to the correct lines on Form 720.

Who Must File

Form 720 applies to businesses that owe or collect federal excise tax on goods, services, or activities covered by the form. Use the criteria below to confirm your filing duty under the instructions on Form 720-2021.

Core Filing Triggers

• You must file Form 720 for any quarter in which you are liable for excise taxes listed in Parts I or II.
  
  
• Prior filers must continue filing quarterly until they submit a valid final return.
  
  
• If you previously reported federal excise tax and have no activity this quarter, you typically file a zero return rather than skip a filing.
  
  
• Liability includes taxes you owe directly and amounts you collect from customers and must report.
  
  
• Form 720 2021 instructions apply even if your tax is limited to a single line item for the quarter.

Examples by Role

• Manufacturers and importers: You may owe fuel taxes, retail vehicle taxes, or other Part I items based on products sold or used.
  
  
• Service providers: Communications and air transportation providers report taxes tied to amounts paid for taxable services.
  
  
• Plan sponsors and insurers: You may owe the PCOR fee for applicable plan years and report it under Part II.
  
  
• Specialty filers: Businesses with environmental taxes compute liability on Form 6627 and carry totals to the correct lines.
  
  
• Seasonal or intermittent operators: You continue to file each quarter unless you qualify for and file a final return.

What’s New for Tax Year 2021

The Form 720 2021 instructions reflect several updates that affect reporting and payment. Use the list below to confirm your rates for federal excise tax returns, lines, and timing.

Rate changes

The details below summarizes key updates referenced in the Form 720 2021 instructions. Use it to confirm amounts before reporting excise taxes on your federal excise tax return.

• PCOR Fee
  • 2021 Rate: $2.66 per average covered life
  • Applies To: Plan years ending 10/01/2020–10/01/2021
  • Reporting Location: Part II (PCOR/health plan section)

• Air Transportation – Domestic Segments
  • 2021 Rate: $4.30 per segment
  • Applies To: Each domestic passenger flight segment
  • Reporting Location: Lines 26–27 (air transportation)

• International Air Travel Facilities Charge
  • 2021 Rate: $19.10 per person
  • Applies To: International arrivals/departures facility use
  • Reporting Location: Lines 26–27 (air transportation)

• Alaska/Hawaii Domestic Segment Charge
  • 2021 Rate: $9.60 per person (departures only)
  • Applies To: Passenger departures within Alaska or Hawaii
  • Reporting Location: Lines 26–27 (air transportation)

• Arrow Shafts (Manufacturing Tax)
  • 2021 Rate: $0.53 per shaft
  • Applies To: Manufacturers and importers of arrow shafts
  • Reporting Location: Manufacturer taxes section

Ensure the correct IRS number and quarter are confirmed before entry, and verify that deposits or payments align with these rates.

Before You Begin: Documents and Setup

Before filing, confirm your entity information and gather records that support your federal excise tax return. Match your legal name and EIN to IRS records. Review prior-quarter filings and deposits to reconcile balances. Enroll in EFTPS early so payments and semi-monthly deposits post on time. Keep supporting certificates ready if you claim exemptions or credits. Organize records by IRS number to simplify entry and review.

• EIN and legal name on file
  
  
• Prior Form 720 and deposit confirmations
  
  
• Transaction records for excise taxes
  
  
• Certificates for exemptions or credits
  
  
• Bank routing and account numbers for EFTPS
  
  
• Calendar of semi-monthly deposit periods

Use the Form 720 2021 instructions to map activities to the correct lines, compute environmental taxes on Form 6627, prepare Schedule A when monthly liability may exceed $2,500, and gather support for Schedule C.

Step-by-Step: Completing Form 720

Use these steps to prepare an accurate federal excise tax return every quarter. Keep clear records, follow line instructions, and match your activities to the correct IRS numbers.

Step 1—Confirm You Must File

Review your quarter’s activities and identify each tax imposed under Parts I and II. You must continue filing if you filed before and did not submit a final return. If there was no activity, please prepare a zero return instead of skipping a filing.

Step 2—Complete the Header

Ensure that your legal name, address, and EIN are entered exactly as they appear in IRS records. Select the correct quarter-ending date. If your mailing address has changed, check the address change box to ensure the IRS systems update your account.

Step 3—Part I: Excise Tax Liability

Report taxes by IRS number and line. For fuel taxes, confirm product type, tax rate, and taxable use before entering gallons or amounts. Use the proper calculation base when reporting items tied to energy products such as gasoline, diesel, kerosene, or natural gas. 

For environmental taxes, compute liability on Form 6627 and carry totals to Part I. Communications and air transportation taxes must reflect amounts paid during the period. Retail vehicle taxes require the correct percentage and attention to exemptions.

Step 4—Part II: Additional Taxes

Report the PCOR fee for specified health insurance policies and those that meet the criteria outlined in the instructions. Include indoor tanning and any manufacturer taxes listed in Part II. Keep worksheets and certificates that support each figure.

Step 5—Part III: Net Tax Liability

Add totals from Parts I and II to determine liability. Enter credits from Schedule C where documentation supports the claim. Reconcile deposits already made through EFTPS with your computed amounts. 

Determine your balance due or overpayment and select your payment method. Retain deposit confirmations and reconcile them to the reported revenue lines that drive your excise computations.

Step 6—Attach Required Schedules

• Schedule A: Complete this if the monthly liability for regular method taxes exceeds $2,500. List each semi-monthly period and the related deposits.
  
  
• Schedule C: Claim credits or refunds for fuel, export, or overpayment credits. Keep certificates and statements as required.
  
  
• Form 6627: Compute environmental taxes here and transfer totals to the designated lines.

Review and Signature

Check IRS numbers, math, quarter dates, and schedule attachments. Ensure that your entries adhere to the 2021 line guidance. Sign the return, include a daytime phone number, and keep records for at least four years. Use Form 720-X to correct prior quarters rather than adjusting the current return.

Policy context note

Form 720 is a compliance return for specific federal excise items. It does not set policy pricing schemes or track broader public policy programs. Those discussions are separate from this filing. Debates may shape future law, but do not change current line entries, schedules, due dates, or deposit rules. Focus on the 2021 instructions for your quarter: identify applicable IRS numbers, compute amounts, attach required schedules, reconcile deposits, and sign.

Filing Methods: E-File and Paper

Electronic filing is optional for Form 720, but many filers prefer it for reliable processing and clear records. Form 720 is not an income tax return; under federal taxation rules, excise taxes are levied on specific transactions, such as petroleum products.

E-file benefits

• E-file delivers clear benefits, including lower administrative costs and fewer posting delays nationwide.
  
  
• Digital submission reduces paper consumption, supports carbon reduction, and aligns with green recordkeeping goals.
  
  
• Accurate deposits help governments fund oversight, which supports the broader economy without relying on subsidies or special incentives.
  
  
• Standardized data improves fee calculations tied to price, unit measures, and the tax imposed for the period.

Paper filing

• Paper remains acceptable when internal controls require it, but you should use a deliverable street (land) address for private carriers.
  
  
• Plan the transition by mapping signatures, approvals, and deposit timing; this planning is a practical compliance investment.
  
  
• Document retention supports future audits and aligns with infrastructure development and responsible spending practices.
  
  
• Accurate reporting does not address pollution policy directly, yet it ensures returns reflect lawful energy use and emissions exposure tied to energy products, natural gas, and related activity.

Payments and Deposits

Form 720 payments follow clear deposit rules. You file on a quarterly basis and make deposits through EFTPS. Liability arises from the production or sale of listed items, and you reconcile deposits and payments in Part III.

• If monthly liability exceeds $2,500, make semi-monthly deposits across the country, due on the 14th day after each period.
  
  
• Report semi-monthly amounts on Schedule A for such taxes, then reconcile totals in Part III before payment.
  
  
• Form 720 does not assess eco taxes by carbon content or energy consumption; it applies statutory excise rates only.
  
  
• Excise systems help agencies generate and raise revenue under fiscal policy, but payment mechanics remain unchanged.
  
  
• Broader policy debates address climate change, negative externalities, natural resources, and water pollution; those aims are separate from deposit timing.
  
  
• Programs tied to sustainable development, efforts to create jobs, or net-zero targets do not alter filing steps.
  
  
• International coordination may occur through economic cooperation forums, often styled as economic cooperation, without changing Form 720 entries.

Required Schedules and Attachments

Before filing, verify the schedules and statements necessary for your activities. Attach only the relevant documents and ensure that every figure corresponds to the lines on Form 720.

• Schedule A—Deposit Reporting: File Schedule A when any regular-method tax liability exceeds $2,500 monthly. Report each semi-monthly period and the corresponding deposits, and ensure totals reconcile to Part III.
  
  
• Schedule C—Credits and Refunds: Use Schedule C to claim fuel credits, export refunds, sales to exempt buyers, or other allowable adjustments. Include model certificates from Publication 510 and any required statements, and retain proof that thresholds and timing rules are met.
  
  
• Form 6627—Environmental Taxes: Compute oil spill liability, ozone-depleting chemicals, and related items on Form 6627. Transfer the results to the correct Part I lines, and keep worksheets that show rates, quantities, and calculations.
  
  
• First Taxpayer’s Report (when required): Provide the buyer’s information, product type, and gallons when fuel may be taxed again later. File it with the return and send the separate copy to the IRS address noted in the instructions.
  
  
• Supporting registrations and certificates: Include any IRS 637 registration evidence and special certificates that support exemptions, rates, or credits. Keep all documentation for at least four years.

Common Errors and How to Avoid Them

Form 720 is an excise return, not a climate policy filing. It does not track greenhouse gas emissions or programs to reduce them. Avoid mixing environmental taxation concepts with the form’s line-by-line rules.

• Do not label Form 720 as a carbon tax or part of green taxes; it only reports specific federal excise liabilities.
  
  
• Keep commentary about economic growth out of the return; entries should reflect factual tax data.
  
  
• Use correct fuel rates and quantities; many Part I lines cover fossil fuels.
  
  
• Do not treat deposits as general tax revenue; match them to IRS numbers and periods.
  
  
• Do not import theories about external costs into calculations; follow statutory rates and instructions.

Zero Activity and Final Return Guidance

Continue filing Form 720 until you submit a valid final return. If you have no excise liability for the quarter, file a zero return rather than skipping the filing. File a final return only when you permanently stop activities that create excise liability.

• To file a zero return, complete the header, enter zeros on applicable lines, and sign the form.
  
  
• Quarterly due dates still apply, and you should retain proof of timely filing.
  
  
• To file a final return, check the “Final return” box, report any final-quarter liability, and include payment if due.
  
  
• Do not file a final return if seasonal or intermittent operations may resume in future quarters.
  
  
• Keep records, certificates, and payment confirmations for at least four years after your last filing.

First-Time Filer Tips

Start with a simple plan and clear records. Confirm your legal name and EIN match IRS files, enroll in EFTPS, and list activities that may create excise liability.

• Build a checklist: applicable IRS numbers, quarter dates, deposit thresholds, and needed schedules (A, C, and Form 6627 for environmental items).
  
  
• Do a draft return to verify rates, gallons, amounts, and math. Reconcile expected deposits for Schedule A and Part III.
  
  
• Gather support for credits: certificates, invoices, and export or fuel documents.
  
  
• Avoid incorrect quarters, address mismatches, mixing prior adjustments (Form 720-X), or missing signatures.
  
  
• Seek professional help handling multiple fuel types, environmental taxes, or complex credit claims. Ensure you retain copies of all filings and confirmations.

Recordkeeping and Documentation

Strong records protect your filing and speed IRS resolutions. Keep a dedicated file for each quarter and reconcile it to your books. Save copies of Form 720, Schedule A, Schedule C, and the worksheets for Form 6627. Retain invoices, bills of lading, fuel purchase logs, and quantity summaries by IRS number. Maintain certificates for exemptions or credits, including model language from Publication 510. 

Match EFTPS deposit confirmations to Schedule A periods, and keep proof of quarter-end payments. Store e-file acceptances or paper proof of mailing and delivery. Keep IRS 637 registration evidence, First Taxpayer’s Reports (FTR), notices, and Form 720-X amendments—secure records with access controls and backups for at least four years.

Helpful IRS Resources

• About Form 720: Current form, quarterly due dates, and filing addresses.
  
  
• Instructions for Form 720 (Rev. June 2021): Line-by-line rules, rates, and schedules.
  
  
• Publication 510: Excise tax categories, IRS numbers, registration, and model certificates.
  
  
• EFTPS: Enrollment steps, deposit scheduling, confirmations, and payment history access.
  
  
• 720 Modernized e-File Provider List: Approved transmitters and software for electronic filing.
  
  
• Private Delivery Services: Approved carriers and required street addresses for courier delivery.
  
  
• Form 720-X: Guidance for amending prior quarters, including timing and mailing details.

Frequently Asked Questions (FAQs)

How does Form 720 handle environmental taxes?

Form 720 covers specific environmental excise items, often called ecological taxes, but only as defined by the IRS. You compute oil spill liability, ozone-depleting chemicals, and related amounts on Form 6627, then carry totals to Part I. The return does not measure emissions or carbon content. File quarterly, follow deposit thresholds, and keep certificates and worksheets that support each line.

Is Form 720 a carbon tax filing?

No, Form 720 reports federal excise taxes on specific goods and services; it is not a carbon tax or a greenhouse-gas pricing system. The form does not set rates to steer energy use. Instead, you report liability by IRS number, reconcile deposits on Schedule A, and attach Form 6627 or Schedule C when required. Use Form 720-X to amend prior quarters.

Are green taxes reported on Form 720?

Form 720 does not implement broad green taxes. It captures only the excise lines listed in the instructions, such as fuel, certain transportation services, and defined environmental items. If your business owes one of those taxes, report it by the correct IRS number, follow calculation rules, and attach schedules as needed. Other environmental charges adopted elsewhere are outside this return.

How does Form 720 relate to climate change policy?

Form 720 is a compliance return, not a tool for climate change policy. It does not track greenhouse gas programs or reward reductions. Your task is to report taxable activities accurately, compute amounts on Form 6627 when required, and meet deposit rules. Broader policy efforts may occur elsewhere; they do not alter this form's line entries, schedule requirements, or quarter-end payment mechanics.

Can I e-file Form 720, and should I?

Yes, the IRS allows optional e-filing through approved providers. E-filing reduces math errors, speeds processing, and provides quick acknowledgments. It also simplifies attaching schedules, matching deposits, and keeping records. Paper filing remains acceptable, especially for select cases or amendments. Choose the method that fits your internal controls, documentation needs, and timing, while maintaining proof of submission, payment, and any corrected entries for your quarter.

What schedules or attachments are commonly required?

Schedule A is required when you have deposit obligations or a monthly liability above $2,500. Schedule C supports credits and refunds, including fuel and export items, with documentation. Form 6627 calculates environmental tax amounts that flow into Part I. Certificates and First Taxpayer’s Reports may be required for certain fuel transactions or exemptions. Retain all support with the return for audit readiness and later reconciliation.