Form 720 2022 Instructions for Accurate Excise Tax Filing

Businesses that sell or provide certain goods and services—such as fuel, air transportation, or indoor tanning—must report and pay federal excise taxes each quarter. The IRS Form 720, the Quarterly Federal Excise Tax Return, is the official document for reporting these taxes. Excise taxes apply to specific products and activities, not general income, and help the federal government fund key transportation, health care, and environmental protection programs.

Filing Form 720 accurately is essential for compliance. Errors in excise tax liability, incorrect tax payments, or missed deadlines can result in failure-to-file penalties, interest charges, and potential enforcement actions under IRS regulations. Proper record keeping and timely and accurate filing help businesses report their total tax correctly and avoid costly mistakes. Whether you operate a sole proprietorship or a corporation, maintaining accurate calculations and submitting timely payments keeps your tax record in good standing.

This guide provides detailed Form 720 2022 instructions to help you confidently complete your federal excise tax return. You’ll learn how to review filing requirements, calculate tax liability, make electronic payments, and attach required schedules like Schedule C and Form 6627. All information is drawn directly from the official IRS website to ensure accuracy and reliability. Whether you’re a small business owner, accountant, or first-time filer, this step-by-step resource will help you file Form 720 correctly and comply with all federal excise tax obligations.

What Is Form 720 and Who Must File

Businesses use Form 720, the Quarterly Federal Excise Tax Return, to report and pay federal excise taxes. These taxes apply to certain goods, services, and activities rather than general income. Examples include fuel, air transportation, environmental, and manufacturers' taxes. The IRS uses this form to track and ensure that businesses pay their share of excise obligations each quarter.

Excise taxes are imposed on specific items or services that the federal government regulates. Most excise taxes are collected from the seller or service provider, who then remits them to the IRS. Filing Form 720 allows the business to record its excise tax liability, confirm total tax due, and stay compliant with IRS regulations.

Who Must File Form 720

Businesses must file Form 720 if they sell or provide services subject to federal excise taxes. Common filers include

Fuel distributors and importers: These businesses pay excise taxes on gasoline, diesel fuel, aviation gasoline, and kerosene.
Air transportation providers: Airlines and charter services pay air transportation taxes on passenger and cargo services.
Insurance and health providers: They report fees such as the Patient-Centered Outcomes Research (PCOR) fee.
Indoor tanning service providers: These businesses must report a 10% excise tax on amounts paid for tanning services.

Continuing and one-time filers must submit the form if excise taxes apply to their activities for the quarter.

Structure of the Form

Form 720 consists of three parts:

Part I: Taxes on fuel, air transportation, and environmental products.
Part II: Other excise taxes such as PCOR and tanning.
Part III: Calculation of net tax liability and payments due.

Businesses may also need to attach Schedule C, Form 6627, or Schedule T for additional reporting. The complete set of 2022 filing instructions is available on the official IRS website.

What’s New for the 2022 Tax Year

The 2022 tax year introduced several changes that affect how businesses report excise taxes on Form 720. Understanding these updates is critical to ensure accurate filing and avoid miscalculating your tax liability.

Alternative Fuel Credits Reinstated

Under the Inflation Reduction Act, alternative fuel and fuel mixture credits were retroactively restored through December 31, 2024. As a result, filers can claim these credits on Schedule C for 2022, particularly fuel sold during the third quarter. Notably, butane or gasoline mixtures may not qualify under the new rules.

Chemical Excise Taxes Return

With the passage of the Infrastructure Investment and Jobs Act, excise taxes on certain chemicals—per Section 4661 and Section 4671—were reinstated effective July 1, 2022. These taxes are reported via Form 6627 and attached to Form 720 for the third calendar quarter. Previously expired chemical tax provisions are again enforceable, affecting applicable manufacturers or importers.

PCOR Fee Increase & Updated Rates

The Patient-Centered Outcomes Research (PCOR) fee for applicable health plans increased to $2.79 per covered life for policy years ending between October 1, 2021, and September 30, 2022. This change must be factored into excise tax calculations using Schedule C.

Tax Rate Adjustments & Expanded E-Filing Options

Several excise tax rates changed in 2022, including for arrow shafts and air transportation (e.g., domestic segment taxes). More business filers can now access electronic filing through participating transmitters, improving speed and reducing errors.

Step-by-Step Instructions for Completing Form 720

Filing Form 720 correctly is essential to avoid penalties and ensure your completed form reflects your total liability. This section breaks down the filing process into six practical steps to submit your IRS tax form accurately and on time.

Step 1 – Review Filing Requirements

Before filling out the form, determine whether your business activities are subject to many excise taxes. These can include fuel, air transportation, environmental, or manufacturer-related taxes. You must also confirm your employer identification number (EIN) is current, as the IRS requires it to process the return.

Businesses must file for each quarter they owe excise tax, even if their activity is minimal. Review prior filings to verify any unpaid tax or adjustments that may affect your current quarter. Consider consulting a tax professional if you’re unsure whether your business is liable for certain taxes.

Step 2 – Complete the Form Header

Start your tax form by entering your business name, address, EIN, and the quarter ending date. If your business has changed locations, mark the address change box. If you’re closing permanently, check the “Final Return” box to notify the IRS.

The tax imposed varies by activity, so accuracy here ensures the form aligns with your registered excise activities. Always verify that your business details match your previous filings to prevent processing delays.

Step 3 – Fill Out Part I: Excise Tax Liability

Part I covers the main excise categories: fuel, air transportation, and environmental taxes. Each line corresponds to a specific activity, identified by IRS numbers in the instructions.

Use Form 6627 to calculate and attach environmental tax amounts when applicable.
Liabilities for fuels such as gasoline, diesel, and kerosene must be recorded based on the applicable rates for 2022.
For air transportation, report both passenger- and cargo-related taxes.

Calculate each liability carefully. Proper tax calculations ensure that your totals align with the IRS instructions and prevent underpayment errors.

Step 4 – Fill Out Part II: Other Excise Taxes

Part II includes additional categories such as the Patient-Centered Outcomes Research (PCOR) fee, indoor tanning, and foreign insurance policies. Some items, like PCOR, are filed annually, while others recur quarterly.

Review the official instructions to confirm which line items are pertinent to your business. Incorrect classification or missed reporting can result in an underpayment penalty or additional assessments later.

Step 5 – Complete Part III: Summary and Total Liability

Add the totals from Parts I and II, then subtract any credits listed on Schedule C. Enter all deposits made during the quarter to calculate your total liability. If your deposits exceed the total owed, report an overpayment. If your payments fall short, remit the balance due with the return.

Failure to pay on time may lead to interest charges or a trust fund recovery penalty, which holds business owners personally liable for withheld taxes not properly paid to the government.

Step 6 – Attach Schedules and Review Before Submission

Attached are the required schedules, such as Schedule C for credits and Form 6627 for environmental reporting. Double-check your figures, verify each section is signed, and confirm all attachments are included.

Ensure all documentation is retained for at least four years, as the IRS may request proof of reported activity during audits. Review the filing instructions on the official IRS website before submission to ensure you have the latest guidance.

Filing Methods: E-File or Paper

When completing Form 720, businesses can file electronically or on paper. The IRS accepts both methods, but the best option depends on your operation’s size, preferences, and record-keeping process. Selecting the right approach helps prevent late filings, delayed payment issues, and other processing errors.

Electronic Filing (E-File)

Filing electronically through the IRS e-file system offers several advantages for eligible businesses:

Faster processing: E-filing transmits your return directly to the IRS, reducing mailing and handling time.
Fewer errors: Built-in validation checks lower the risk of rejected filings.
Immediate confirmation: You receive acknowledgment once your submission is accepted.
Timely submission protection: If a date falls on a weekend or legal holiday, the return is considered on time when filed the next business day.

Electronic filing is ideal for companies reporting fuel taxes, airline tickets, or other excise-related activities. It also benefits those filing for multiple quarters, such as the second or fourth quarter, since electronic systems efficiently handle higher volumes.

Paper Filing

Some organizations continue using paper filing due to internal procedures or limited digital access. When mailing your return:

Use black ink and clear print to ensure legibility.
Attach all schedules and payment vouchers to help prevent any delays.
Verify the check or money order's accuracy before sending payment.
Mail early to prevent delayed payment penalties if postal service disruptions occur.

Paper returns are processed more slowly, so businesses should allow additional time for acknowledgment. Choosing the proper filing method ensures your business falls under full IRS compliance and keeps your excise tax reports current.

Payment and Deposit Requirements

Businesses filing Form 720 must pay their excise taxes on time to comply with IRS regulations. Understanding when and how to make deposits helps prevent late payments and penalties. The IRS provides several secure methods for submitting these payments, depending on your filing preference and total tax liability.

Using the Electronic Federal Tax Payment System (EFTPS)

The Electronic Federal Tax Payment System (EFTPS) is the standard method for paying federal excise taxes. It is a free service provided by the Department of the Treasury and available 24 hours daily. Businesses can make deposits online or by phone once enrolled.

To enroll in EFTPS:

Visit the official Treasury website to complete the registration process.
Link a business bank account for direct payments.
Schedule payments in advance to ensure timely posting.

EFTPS is recommended because it provides confirmation numbers for each transaction, offers proof of payment, and improves tracking for compliance purposes.

Semi-Monthly Deposit Schedule

Most excise tax filers must follow a semi-monthly deposit schedule, which splits each month into two payment periods:

First period: From the 1st through the 15th of the month, with payment due by the 29th.
Second period: From the 16th through the end of the month, with payment due by the 14th.

This schedule applies to many excise categories, including fuel, air transportation, and environmental taxes. Businesses with smaller quarterly liabilities (less than $2,500) may pay the full amount when filing Form 720 instead of making semi-monthly deposits.

Payment Options and Best Practices

Businesses may submit payments through several methods:

EFTPS: The most secure and preferred option.
Check or money order: Payable to “United States Treasury,” attached to Form 720-V.
Electronic funds transfer: Available for filers who prefer direct debit through IRS-approved software.

To avoid processing issues, ensure payments are submitted before the due date, including adjustments for weekends and federal holidays. Accurate deposits help demonstrate compliance and maintain a strong IRS record.

Required Attachments and Documentation

When filing Form 720, businesses must include all schedules and forms supporting the reported excise tax amounts. Proper documentation ensures accuracy, prevents return rejection, and helps maintain compliance if the IRS requests verification later. Each attachment serves a specific purpose in tracking taxes owed on different products, services, or activities.

Key Attachments

Schedule C—Claims and Credits: This schedule claims refunds or credits for previously paid excise taxes. It is also required when adjusting for overpayments or claiming credit for exported or nontaxable uses.
Form 6627 – Environmental Taxes: This information is required when reporting liability for oil spills, ozone-depleting chemicals, or chemical excise taxes.
Schedule T – Two-Party Exchange Information: Used for reporting exchanges of taxable fuels between registered parties.
First Taxpayer’s Report: This requirement applies to businesses that sell or transfer taxable fuel, which may be subject to additional taxation later in the supply chain.

Each form must be completed, signed, and attached to the quarterly return. For example, a filer reporting tobacco tax or other excise categories in the second quarter must include documentation supporting each line item reported.

Filers should maintain all schedules, records, and supporting evidence quarterly for at least four years. These records should align with excise and income taxes reported to the IRS. Complete and organized documentation supports accurate accounting, verified unit sales, and consistent compliance with federal tax law.

Common Mistakes and How to Avoid Them

Accurate completion of Form 720 helps prevent processing delays, notices, and unnecessary penalties. Many errors come from simple oversights, such as using the wrong form version or forgetting to attach required schedules. Reviewing your information carefully before submission can save both time and money.

Frequent Filing Errors

Using the wrong form year: Each tax year has specific rates and line references. Always confirm using the correct 2022 form to ensure the calculations match current rates.
Incorrect or missing Employer Identification Number (EIN): The EIN links your business to its tax record. Errors or omissions can cause the IRS to reject or misapply your return.
Unsigned or incomplete returns: An authorized individual must sign every return. Unsigned returns are considered unfiled and may trigger a penalty.
Improper credit claims: Claiming credits on Schedule C without supporting documentation can delay processing or audit adjustments.
Incorrect totals or deposits: Miscalculating liability or deposits often results in underpayment notices. Double-check all figures before filing.
Missing attachments: Omitting Form 6627 or Schedule T when required can invalidate a return or lead to requests for additional information.

How to Prevent Errors

Before filing, verify every section for accuracy, confirm that attachments are complete, and ensure your payment records align with deposits made. Keeping organized quarterly records and reviewing instructions before submission helps avoid penalties and maintain smooth compliance with IRS reporting requirements.

Zero Activity or Final Return Filing

Even when a business has no excise tax activity for a given quarter, a Form 720 filing may still be required. Unless they have formally closed their excise accounts, the IRS expects consistent reports from previously filed businesses. Filing with zero activity keeps your record active and prevents missed-filing notices.

Zero Activity Returns

If no excise taxes are due for the quarter:

File the return every quarter and enter “None” in the liability fields.
Sign and date the form as usual.
Maintain documentation indicating no taxable sales or services during the period.

Maintaining routine submissions ensures continued compliance, especially for companies that expect to resume taxable operations later in the year.

Final Return Filing

Businesses that permanently stop operations subject to excise taxes must mark the “Final Return” box on Form 720. Ensure to include payment for any remaining liability and submit all required schedules. Once accepted, the IRS will close the excise account. Retain proof of filing and any correspondence for your records to verify the account’s closure and avoid future inquiries.

Tips for First-Time Filers

Filing Form 720 for the first time can feel complex, but a structured approach helps ensure accuracy and compliance. Many first-time filers are small business owners or accountants new to excise tax reporting, so starting with a strong system of organization is essential.

Register and Prepare Early

Before filing, confirm that your business has an active Employer Identification Number (EIN). This number identifies your company to the IRS and must appear correctly on every submission. Review the list of taxable goods and services to determine whether your operations are subject to excise taxes, such as those on fuel, air travel, or indoor tanning services.

Set Up a Reliable Payment and Record System

Enroll in the Electronic Federal Tax Payment System (EFTPS) to make timely deposits and track payments. Keep receipts and confirmation numbers for every transaction. Maintain organized quarterly records to support your filings and ensure all credits, deposits, and liabilities align with IRS data.

Learn from Common Mistakes

Many new filers underestimate the importance of attaching schedules such as Schedule C or Form 6627. Double-check that every attachment is included and accurately labeled. Before submitting, review the totals for each line, verify your contact details, and sign the form.

With proper preparation, clear documentation, and consistent quarterly tracking, first-time filers can build confidence and avoid penalties while fully complying with IRS requirements.

Frequently Asked Questions (FAQs)

What are federal excise taxes, and who pays them?

Federal excise taxes are special taxes on specific goods and services, such as fuel, air transportation, and health insurance policies. Businesses that sell or provide these taxable items must collect and remit these taxes to the IRS each quarter. The federal excise tax return is used to accurately report and pay these amounts.

What is the purpose of IRS Form 720?

Businesses use IRS Form 720 to report quarterly excise taxes owed to the federal government on specific goods and services, such as fuel, air transportation, and environmental products. This form allows companies to record their total excise tax liability, report credits, and make payments. Filing ensures compliance with IRS regulations, prevents penalties, and keeps business records current through accurate and timely reporting each quarter.

How do I complete the process for filing a federal excise tax return?

The filing process involves determining which excise taxes apply, completing all three parts of Form 720, and attaching any necessary schedules. Filers must calculate total liability, apply credits, and submit payment. Returns can be filed electronically or by mail, depending on preference. Always confirm the correct quarter and due date before filing.

How do I know which IRS numbers apply to my business?

Each taxable product or service is assigned a unique identifier called an IRS number. These numbers appear in Parts I and II of Form 720 and correspond to specific excise tax categories, such as fuel or indoor tanning. Refer to the official IRS instructions for the complete list of applicable numbers for your activities.

What should I review before filing Form 720 to ensure accuracy?

Before filing Form 720, carefully review every entry for accuracy, including your business information, tax amounts, and Employer Identification Number (EIN). Documents such as Schedule C and Form 6627 are attached. Verify that deposits match reported liabilities and that payments are made by the correct due date. Keeping organized records and reconciling totals each quarter ensures your federal excise tax return is accurate and compliant.

Checklist for Form 720 2022 Instructions for Accurate Excise Tax Filing