What Are the IRS Instructions for Form 720? A Step-by-Step Guide for Businesses
If your business owes federal excise tax, the IRS expects you to follow a very specific playbook when you prepare and file Form 720. The challenge is that the “playbook” is not just the form itself, it’s the official IRS guidance that tells you what to report, where to report it, when to deposit, and how to fix mistakes.
This guide answers the question, “What Are the IRS Instructions for Form 720?” by translating the instructions into a practical, step-by-step workflow that finance teams, founders, and controllers can use to reduce filing risk and avoid costly rework.
First, what the IRS means by “instructions”
When the IRS says “instructions,” it means the authoritative document published alongside the form that explains:
- Who must file (and what triggers filing)
- What counts as taxable activity
- Which line numbers and tax rate references apply
- Which schedules may be required (for example, Schedule A deposits)
- How to claim credits or refunds (and when to use Form 8849 instead)
For reference, you can always start with the IRS’s official pages for Form 720 and the Form 720 Instructions (the instructions link is posted with the form package).
A quick sanity check: is Form 720 “a tax return,” and what is it?
Yes. A tax return is a form you file to report tax liability, reconcile payments, and calculate what you owe (or what you can claim back). Form 720 is a Quarterly Federal Excise Tax Return, which means it can function like a recurring operational compliance return, not a once-a-year income tax event.
That distinction matters strategically: excise taxes often attach to transactions (sales, use, premiums, fuel removals), so errors usually come from operational data, not accounting theory.
Step-by-step: how to follow the IRS instructions for Form 720
Step 1: Identify your excise “trigger,” not just your industry label
The IRS instructions are organized by tax types and activities, not by NAICS codes. So the most reliable starting point is to map what your business does to potential triggers, for example:
- Fuel activities, shipments, removals, sales, or uses
- Air transportation and communications services
- Manufacturers or importers of certain products
- Foreign insurance premiums (for certain U.S. risks)
- The PCORI Fee for applicable health plan sponsors/issuers (reported on Form 720, even though it’s annual in practice)
Strategic insight: investor-backed companies often change operating models quickly (new states, new vendors, new benefit structures). The biggest Form 720 risk is assuming last quarter’s trigger list still applies.
Step 2: Confirm which quarter you’re filing for, and whether deposits apply
Form 720 is quarterly, and the instructions specify how to label the quarter and tax period.
Then, the IRS instructions address a separate concept: excise tax deposits. Some excise taxes require semi-monthly deposits depending on the type/amount of liability. Even if you file accurately, deposit noncompliance can create penalty exposure.
If you deposit or pay electronically, the IRS generally points filers to EFTPS. Align your treasury process early so payments are not a last-day scramble.
Step 3: Gather source data that ties to IRS “line logic”
Before you touch the form, build your documentation to match how the IRS wants to see it. A common best practice is to create a quarterly “excise binder” (digital is fine) that includes:
- Transaction summaries (by product/service category)
- Taxable quantity or taxable sales base
- Exemption certificates or proof for nontaxable treatment
- Deposit confirmations (if applicable)
- Prior-quarter workpapers for continuity
Lessons learned from fast-growing operators: the cleanest filings come from stable data definitions (what counts as taxable, what counts as exempt) that the finance team codifies and reviews quarterly.
Step 4: Use the instructions to match your tax to the correct IRS “reference number”
One of the most important parts of the IRS instructions is the mapping between excise categories and the numbers/lines on Form 720.
If you pick the wrong line, you can end up with:
- A mismatch between your calculation and IRS validation rules
- Misapplied deposits
- A delay when you later try to amend or claim a refund
Below is a practical “instructions-to-action” map you can use when reading the IRS package.
| IRS instructions section (how you’ll see it) | What to do in your workflow | What to prepare before filing |
|---|---|---|
| “Who Must File” and “When To File” | Confirm filing obligation and quarter | Trigger memo, quarter calendar, responsible owner |
| Line-by-line tax tables and references | Map activities to the correct line/reference | Tax base, rate support, system reports |
| Schedule A deposit guidance (if applicable) | Reconcile deposits vs liability | Deposit schedule, EFTPS confirmations |
| Credits/refunds guidance | Decide whether Form 720 or Form 8849 is appropriate | Credit memo, eligibility support, timing |
| Signature, third-party designee, recordkeeping | Set internal approval and retention | Approver sign-off, retention folder |
Step 5: Treat PCORI Fee as a “mini-project,” not a line item
Many businesses first encounter Form 720 due to the PCORI Fee. The instructions and IRS guidance require you to:
- Confirm whether you’re the liable party (issuer vs plan sponsor, depending on plan type)
- Use an approved method to calculate average covered lives
- Apply the PCORI rate for the applicable plan year (the rate is updated periodically by IRS guidance)
Trend to watch (2026 planning): more employers are offering alternative funding arrangements and HRAs, which can change who files and how covered lives are counted. Treat benefits structure changes like tax changes.
Step 6: Decide early: amend (720-X) or claim (8849)
The IRS instructions (and related IRS guidance) typically separate “fixing a filed return” from “requesting a refund/credit.” Two common tools are:
- Form 720-X for amendments to previously filed Form 720 returns
- Form 8849 for certain refund claims (often tied to specific excise categories)
Strategic advice: don’t wait until year-end to reconcile excise tax issues. If you discover an error, resolve it while the data and stakeholders are still available. Delayed fixes increase the chance you cannot substantiate an exemption or reconstruct a taxable base.
Step 7: Choose a filing method that reduces operational risk
The IRS accepts paper filing, but many businesses prefer e-filing for speed and cleaner audit trails.
An IRS-authorized provider like E Eile Excise 720 (eFileExcise720) can be a practical choice if your team values:
- IRS-authorized e-filing (no software download needed)
- A guided dashboard to navigate Form 720 categories
- Support for amendments (720-X) and Form 8849 claims
- Secure handling of filing data
If you are comparing options, evaluate them like any other compliance control: acknowledgments, error prevention, support responsiveness, and how easy it is to reproduce workpapers later.
Step 8: Review pricing and escalation paths before you hit “submit”
Because Form 720 filings can range from a single PCORI entry to multiple excise categories with deposit schedules, costs can vary by filing scenario.
Before filing, confirm two operational items:
- Pricing: Review the pricing information presented by your filing solution so procurement and accounting are aligned.
- Support path: Make sure you know where to go if something is rejected or a category selection is unclear (for example, use the provider’s contact us option).
Frequently Asked Questions
What Are the IRS Instructions for Form 720 actually used for? They tell you who must file, which excise taxes belong on which lines, how to calculate and report them, whether deposits apply, and how to handle credits, refunds, and corrections.
Do I file Form 720 every quarter even if I have no liability? It depends on your situation and the IRS rules for your specific excise tax category. Some filers may need to file to report activity, while others may not. When in doubt, review the IRS Form 720 instructions for your category or consult a tax professional.
Where does the PCORI Fee go on Form 720? The PCORI Fee is reported on Form 720 using the section/line specified in the IRS instructions for the applicable year. Because the rate and reporting details can change, always verify against current IRS guidance.
When should I use Form 8849 instead of Form 720? Use Form 8849 when your situation fits one of the IRS-defined claim categories that require that form (commonly certain refund claims). The Form 720 instructions help explain when credits/refunds belong on Form 720 versus when a separate claim is required.
How do I fix a mistake after filing Form 720? Many corrections are made using Form 720-X (amended return). The right approach depends on what was wrong and whether you’re correcting tax, deposits, or claiming money back.
File Form 720 with less guesswork
If you want a faster way to apply the IRS instructions for Form 720 without turning every quarter-end into a manual compliance project, an IRS-authorized e-file workflow can help.
Visit eFileExcise720 to create a free account, prepare your Form 720 (including PCORI Fee reporting), and e-file securely. If you have questions during the process, use the site’s contact us option to reach dedicated support.
