Air Transportation Excise Tax: Regular vs Alternative Method
The Air Transportation Excise Tax is a federal excise tax imposed on amounts paid for the transportation of persons and property by air. These taxes are reported quarterly using IRS Form 720, specifically for the following IRS tax numbers:
IRS No. 26 – Transportation of persons by air (passenger percentage and segment taxes)
IRS No. 27 – Use of international air travel facilities tax
IRS No. 28 – Transportation of property by air tax
These taxes must be deposited on a semi‑monthly basis when the quarterly net tax liability exceeds a certain threshold, and businesses must comply with Form 720 filing schedules.
Air Transportation Excise Tax - Key Points
Under the Air Transportation Excise Tax, the taxes cover transportation services like ticket sales, transportation of cargo, and utilization of international air transport facilities. The taxes are remitted to the IRS by air carriers. The tax rate varies according to the kind of service offered, as per IRC Section 4261 and IRC Section 4262.
IRC § 4261 imposes a 7.5% tax on the amount paid for air transportation of passengers. IRC § 4262 imposes an excise tax on the transportation of property by air, calculated at a flat rate per 100 pounds of property transported in domestic commerce. Form 720 is used to report these liabilities on a quarterly basis, but the semi‑monthly deposits and quarterly filing are separate requirements under IRS rules.
Form 720 requires excise taxpayers to report these liabilities in Part I and to use Schedule A to capture deposits based on semi‑monthly periods. Schedule A distinguishes between two classes of deposit reporting:
Regular method – entered in Line 1
Alternative method – entered in Line 2 (for select IRS numbers)
These payments are made based on the semi‑monthly deposit requirement, which is due if the liability exceeds the IRS threshold.
What Is a Regular vs Alternative Method in Air Excise Tax?
The Regular vs Alternative Method in air transportation excise tax pertains to how deposits are reported and when those deposits are due. These methods do not change the calculation of the tax, but they determine the timing of the deposits.
Semi‑Monthly Deposits
The IRS requires excise tax deposits for Part I excise tax categories to be made semi‑monthly. This means businesses must submit their excise tax deposits twice a month based on amounts collected. The deposits are due on the following schedule:
The threshold of $2,500 applies to taxpayers who are required to deposit excise taxes semi‑monthly. If a taxpayer’s quarterly net tax liability exceeds $2,500, they must adhere to this deposit schedule. This threshold amount is confirmed by the IRS Form 720 Instructions.
Regular Method
The Regular Method is the most common method for depositing excise taxes. Under this method:
A taxpayer reports taxes actually collected during each semi‑monthly period.
Deposits are made twice per month as per the schedule outlined above.
Example – Regular Method Deposit
1)Suppose an airline collects $10,000 in air transportation excise tax from ticket sales between January 1st to January 15th. The deposit for this collection will be due on February 15th.
2)If the airline collects $15,000 between January 16th and January 31st, the deposit for this second period will be due on February 28th.
Thus, the deposits are based on actual collections, and the timing is governed by the IRS semi‑monthly deposit schedule.
Alternative Method
The Alternative Method is a special reporting method available for certain IRS tax numbers, specifically for IRS No. 22 (communications excise taxes) and IRS Nos. 26, 27, and 28 (air transportation excise taxes). This method allows taxpayers to deposit taxes based on amounts billed or tickets sold rather than actual receipts collected.
Criteria for Alternative Method
When using the Alternative Method, the tax is treated as deemed collected at the time that the bill is sent or at the time that the ticket is sold. This type of treatment is usually applied in cases where there is an inconsistency between the dates of the bill or ticket being issued and payment actually being received.
Deposits under the Alternative Method are reported on Line 2 of Schedule A in Form 720. The due dates for deposits are also tied to the timing of billing or ticket sales.
You can learn about these two methods in detail from the official IRS Air Transportation Excise Tax PDF
Regular Method and Alternative Method - Which is better?
Which Method is Best?
Regular Deposit Method: Best for businesses with regular, predictable cash flow and tax collections.
Alternative Deposit Method: Ideal for businesses with variable billing cycles or those who need flexibility in their deposit schedules, allowing them to report based on when amounts are billed or tickets are sold.
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Conclusion
In conclusion, the Air Transportation Excise Tax is a critical type of tax that must be reported and deposited by air transportation companies using Form 720. Both Regular Method and Alternative Method can be used in making semi-monthly deposits, though the time when deposits should be made and their basis vary in each of the two methods.
Deposits under Regular Method are calculated in accordance with collections made during a month, whereas those made under Alternative Method depend on either ticket sales or billing amount.
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