How to calculate Excise Tax
Businesses subject to Federal Excise Taxes generally understand that they must report and pay these taxes quarterly using IRS Form 720. However, calculating the exact tax amount can be challenging, especially for businesses dealing with multiple taxable products and services, each subject to different tax rates and calculation methods. Accurate tax calculations are essential to ensure compliance, avoid costly errors, and prevent potential Form 720 late filing penalty.
This guide will walk you through the process of calculating federal excise taxes accurately, helping you determine the correct tax amount and file Form 720 with confidence.
Note: All tax rates used in the calculations below are based on the applicable Federal Excise Tax rates for 2026.
How to calculate the Federal Excise Taxes?
1)Environmental Excise Tax Calculation
a)Petroleum Products
Tax categories under Petrol are Imported petroleum products superfund tax(16), Domestic petroleum superfund tax(53) which falls under Superfund Tax.
Both domestic crude oil and imported petroleum products are subject to a petroleum Superfund tax rate of $0.18 per barrel.
Calculation formula - Tax Liability = Number of Taxable Barrels × Tax Rate
=100,000 x $0.18 = $18,000
The total federal petroleum excise tax liability is $18,000.
b)Imported Chemical Substances
Popular tax category filed under for Chemicals is Chemicals (Other than ODC’s)(54)
The tax is generally calculated based on the quantity of taxable chemicals used to manufacture the imported substance.
Calculation formula:
Tax Liability = Quantity Imported (Tons) × Conversion Factor × Tax Rate per Ton
Example:
Assume 1 ton of a taxable imported substance is manufactured using 25% chromite and 40% nickel by weight.
Calculate the chromite tax = Tax rate per ton x Weight ratio
= $3.04 × 0.25 = $0.76
Calculate the nickel tax = Tax rate per ton x Weight ratio
= $8.90 × 0.40 = $3.56
For 100 tons of the same taxable substance,
Total = 100 × $4.32 = $432 total tax liability
Alternatively, if the conversion factor cannot be determined:
Use the IRS-prescribed tax rate for the imported substance, if available.
If no IRS-prescribed rate is available, calculate 10% of the appraised entry value.
For example, if the appraised entry value is $10,000:
$10,000 × 10% = $1,000 tax liability
2)Communication and Air Transportation Tax Calculation
a)Local telephone service and teletypewriter exchange service(22)
Tax Rate: 3%, Formula: Taxable Service Charges × 3%
Example: A provider charges $100 for taxable local telephone services.
$100 × 3% = $3 tax liability
Below we have the US Air Transportation Tax categories with calculation methods.
b)Transportation of Persons by Air(26)
Percentage tax: 7.5%
Domestic segment tax: $5.30 per passenger per segment
Formula: Tax Liability = (Taxable Fare × 7.5%) + (Number of Segments × $5.30 × Number of Passengers)
Example: A passenger purchases a domestic flight ticket for $300 with one taxable segment.
($300 × 7.5%) + (1 × $5.30 × 1)
= $22.50 + $5.30 = $27.80 tax liability
The same formula applies to taxable charter flights.
C)Transportation of Property by Air(28)
Tax Rate: 6.25%, Formula: Taxable Air Transportation Charges × 6.25%
Example: A company pays $10,000 to transport goods from New York to Los Angeles.
$10,000 × 6.25% = $625 tax liability
d)Use of International Air Travel Facilities(27)
International travel: $23.40 per passenger
Qualifying Alaska/Hawaii travel: $11.70 per passenger
Formula: Number of Passengers × Applicable Tax Rate
Example: Two passengers travel from New York to Delhi.
2 × $23.40 = $46.80 tax liability
3)Fuel Excise Tax Calculation
Federal Fuel excise tax is calculated based on the quantity of taxable fuel and the applicable IRS tax rate for that fuel type. Popular Fuel excise taxes filed are Compressed natural gas (CNG)(120), Liquefied Petroleum Gas (LPG)(112), Diesel Tax (60), Dyed diesel LUST tax (105)
Formula: Tax Liability = Taxable Fuel Quantity (Gallons) × Applicable Tax Rate per Gallon
Example: A business imports 10,000 gallons of taxable kerosene.
Taxable quantity: 10,000 gallons
Kerosene tax rate: $0.244 per gallon
Calculation:
10,000 × $0.244 = $2,440
Total tax liability: $2,440
Note: Tax rates vary depending on the fuel type and its intended use. Refer to the below Screenshot of Form 720 which has the respective tax rates for each fuel.
4)Retail Excise Tax Calculation
Truck Federal Excise tax applies to the first retail sale of certain heavy trucks, tractors, trailers, and semitrailers.
Tax Rate: 12% of the taxable sales price (IRS No. 33)
Formula: Tax Liability = Taxable Sales Price × 12%
Example: A dealer sells a taxable heavy truck for $150,000.
Calculation:
$150,000 × 12% = $18,000
Total tax liability: $18,000
5)Ship Passenger Excise Tax Calculation
Ship passenger Excise Tax applies to qualifying commercial passenger voyages, including overnight cruises and certain gambling voyages.
Tax Rate: $3 per passenger (IRS No. 29)
Formula: Tax Liability = Number of Taxable Passengers × $3
Example: A cruise ship carries 500 taxable passengers on a qualifying overnight voyage.
Calculation:
500 × $3 = $1,500
Total tax liability: $1,500
6)Foreign Insurance Excise Tax Calculation
Foreign Insurance Excise Tax(IRS Num 30) applies to taxable insurance premiums paid on policies issued by foreign insurers.
Tax Rates:
Casualty insurance and indemnity bonds: 4%
Life, sickness, accident insurance, and annuity contracts: 1%
Reinsurance: 1% (subject to applicable exemptions)
Formula: Tax Liability = Taxable Insurance Premium × Applicable Tax Rate
Example: A business pays $10,000 in taxable casualty insurance premiums to a foreign insurer.
Calculation:
$10,000 × 4% = $400
Total tax liability: $400
7)Manufacturer Excise Tax Calculation
Federal excise tax applies to taxable highway tires sold by manufacturers, producers, or importers. Common tax category filed under Manufacturer Excise Tax is Taxable tires other than bias ply or super single tires (108)
Tax Rates:
IRS No. 108: $0.0945 per 10 pounds
IRS No. 109: $0.04725 per 10 pounds
IRS No. 113: $0.0945 per 10 pounds
Formula: Tax Liability = [(Maximum Rated Load Capacity − 3,500 lbs) ÷ 10] × Applicable Tax Rate × Number of Tires
Example: A manufacturer sells 100 taxable highway tires (IRS No. 108), each with a maximum rated load capacity of 5,500 pounds.
Calculation:
Excess load capacity: 5,500 − 3,500 = 2,000 lbs
Tax per tire: (2,000 ÷ 10) × $0.0945 = $18.90
Total tax: 100 × $18.90 = $1,890
Total tax liability: $1,890
8)Patient-Centered Outcomes Research Fee Calculation
The Patient-Centered Outcomes Research Institute Fee - PCORI Fees(133) is calculated based on the average number of covered lives and the applicable IRS fee rate.
PCORI Fee Rates (2026 Filing):
Plan years ending January–September 2025: $3.47 per covered life
Plan years ending October–December 2025: $3.84 per covered life
Formula: PCORI Fee = Average Number of Covered Lives × Applicable Fee Rate
Example: An employer's self-insured health plan ended on December 31, 2025, with an average of 500 covered lives.
Calculation:
500 × $3.84 = $1,920
Total PCORI Fee: $1,920
Simplify the calculation process with our Online PCORI Fee Calculator. Just provide the input and get your PCORI Fee amount in seconds accurately.9)Sport Fishing Equipment Excise Tax Calculation
Excise Tax on Fishing Equipment applies to taxable sport fishing equipment, such as fishing reels, fishing lines, hooks, and artificial lures, sold by manufacturers, producers, or importers. Popular tax categories filed for Sport fishing are Sport fishing equipment (41), Fishing rods and fishing poles (110).
Tax Rate: 10% of the taxable sales price.
Formula: Tax Liability = Taxable Sales Price × 10%
Example: A manufacturer sells taxable fishing reels worth $10,000.
Calculation:
$10,000 × 10% = $1,000
Total tax liability: $1,000
10)Indoor Tanning Excise Tax Calculation
Tan Excise Tax applies to taxable indoor tanning services that use ultraviolet (UV) lamps.
Tax Rate: 10% of the taxable service charges.
IRS number: 140
Formula: Tax Liability = Taxable Indoor Tanning Service Charges × 10%
Example: A tanning salon collects $5,000 from taxable indoor tanning services during a quarter.
Calculation:
$5,000 × 10% = $500
Total tax liability: $500
11)Inland Waterways Fuel Use Tax Calculation
Inland Shipping Excise Tax applies to taxable fuel used in commercial transportation on designated inland waterways.
Tax Rate: $0.29 per gallon.
IRS number: 64
Formula: Tax Liability = Gallons of Taxable Fuel Used × $0.29
Example: A commercial vessel uses 10,000 gallons of taxable fuel while operating on designated inland waterways.
Calculation:
10,000 × $0.29 = $2,900
Total tax liability: $2,900
12)Repurchase of Corporate Stock Excise Tax Calculation
Federal excise tax applies to stock repurchases made by certain publicly traded corporations and their specified affiliates. Form 7208 instructions help you learn more about this tax.
Tax Rate: 1%
IRS number: 150
Formula: Tax Liability = (Stock Repurchase Value − Applicable Exclusions and Adjustments − Eligible Stock Issuance Value) × 1%
Example: A corporation repurchases $5 million worth of stock and issues $1 million worth of eligible stock during the same tax year, with no other adjustments.
Calculation:
($5,000,000 − $1,000,000) × 1% = $40,000
Total tax liability: $40,000
13)Remittance Transfer Excise Tax Calculation
Remittance Transfer Tax applies to certain international money transfers funded using cash, money orders, cashier’s checks, or similar physical instruments.
Tax Rate: 1%
IRS number: 155
Formula: Tax Liability = Taxable Remittance Transfer Amount × 1%
Example:
A person sends $10,000 in cash from the United States to India through a remittance transfer provider.
Calculation:
$10,000 × 1% = $100
Total tax liability: $100
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