Federal excise tax is a tax on the sale of specific goods, not on income or property
Federal excise tax is a tax the federal government places on the manufacture or sale of certain products. It is different from income tax or sales tax. Instead of taxing all purchases or all earnings, excise tax targets particular items: gasoline, cigarettes, alcohol, airline tickets, fishing equipment, and others. The tax is usually built into the price you pay at the register, so you may not see it as a separate line item.
The federal government uses excise tax for two main reasons. First, it raises money for the federal budget. Second, it discourages consumption of products the government considers harmful or wants to limit — like fuel and tobacco. Some excise taxes fund specific programs: the tax on gasoline, for example, goes partly to the Highway Trust Fund, which pays for road maintenance and construction.
Excise tax is paid by manufacturers and importers, not directly by you as a consumer. However, they pass the cost to retailers, who pass it to you. The result is the same: the price you pay includes the excise tax.
Key Takeaways
- Federal excise tax applies to specific products like gasoline, cigarettes, alcohol, and airline tickets, not to all goods or income.
- The tax is collected from manufacturers and importers, then passed through to consumers in the final price.
- Excise tax rates vary by product and are set by federal law; some products have a flat per-unit tax, others a percentage of the sale price.
- Revenue from excise tax funds the federal government and sometimes specific programs, such as the Highway Trust Fund for roads.
- Excise tax is separate from sales tax and income tax, and you will see it listed separately on some receipts, particularly for fuel and alcohol.
Common products subject to federal excise tax
The federal government taxes a defined list of products. Gasoline and diesel fuel carry an excise tax of 18.4 cents per gallon for gasoline and 24.4 cents per gallon for diesel, as of 2024. These rates have not changed since 1993. Cigarettes are taxed at $1.01 per pack of 20. Smokeless tobacco, cigars, and pipe tobacco each have their own rates.
Alcohol is taxed differently depending on the type. Beer is taxed per barrel, wine per gallon, and spirits per proof gallon. The rates vary and are set by federal law. Airline tickets carry a 7.5 percent excise tax on the ticket price. Fishing equipment, hunting equipment, and firearms each carry a 10 or 11 percent excise tax. Certain medical devices are also subject to excise tax, though the rate and scope have changed over time.
Tires, coal, and indoor tanning services are also on the list. The full list of excisable goods is maintained by the Internal Revenue Service (IRS) and changes when Congress passes new laws. Not all states tax the same products at the state level, so your total tax burden depends on where you live and what you buy.
How excise tax rates are set and changed
Congress sets federal excise tax rates through legislation. Once a rate is set, it remains in effect until Congress votes to change it. The gasoline excise tax, for example, has been 18.4 cents per gallon since 1993 — no automatic adjustment for inflation. This means the real value of the tax has declined over time as prices have risen.
When Congress wants to raise revenue or change behavior around a product, it can raise the excise tax rate or add a new product to the list. When it wants to reduce the tax burden, it can lower the rate or remove a product. These changes require a new law and a vote in both the House and Senate.
Some excise taxes are temporary. For example, Congress has added and removed excise taxes on certain medical devices multiple times. The tax on indoor tanning was added in 2010 as part of the Affordable Care Act. Understanding whether a tax is permanent or temporary matters if you are planning a business that depends on the price of an excisable good.
Excise tax versus sales tax and income tax
Excise tax, sales tax, and income tax are three separate systems. Income tax is a percentage of your earnings. Sales tax is a percentage of most purchases you make at a store. Excise tax is a tax on specific products only, and the rate is usually set per unit (like per gallon) rather than as a percentage of price.
You may pay all three on a single purchase. If you buy a pack of cigarettes, you pay federal excise tax (built into the price), state and local sales tax (added at checkout), and possibly state excise tax on cigarettes as well. If you buy gasoline, you pay federal excise tax per gallon, state excise tax per gallon (which varies by state), and sometimes sales tax on top of that.
On some receipts, excise tax is shown as a separate line. Gas station receipts often break out the federal and state fuel tax. Alcohol receipts may show excise tax separately. On other purchases, the excise tax is simply included in the price and not itemized.
Who collects and reports federal excise tax
Manufacturers, producers, and importers of excisable goods are responsible for collecting and paying federal excise tax to the IRS. They report the tax on their federal tax returns. Retailers do not usually file excise tax returns — the manufacturer or importer handles it upstream.
The IRS maintains records of excise tax payments and uses them to track compliance. If a manufacturer fails to pay excise tax owed, the IRS can assess penalties and interest. Businesses that sell excisable goods must keep records of their purchases and sales to prove they paid the tax or collected it correctly.
For consumers, there is no separate excise tax filing requirement. You do not report excise tax on your personal income tax return. The tax is already paid by the time the product reaches you.
How excise tax revenue is used
Excise tax revenue goes into the federal government's general fund and, in some cases, into dedicated trust funds. The most visible example is the Highway Trust Fund, which receives revenue from the federal fuel excise tax. That money is used to fund highway construction, maintenance, and public transportation projects.
Other excise tax revenue goes to the general Treasury and is available for Congress to spend on any federal program. There is no automatic link between the tax on cigarettes and a specific program, for example. Congress decides each year how to allocate the money.
Some states also collect their own excise taxes on the same products and use that revenue for state-specific purposes. State fuel tax, for example, often funds state roads and bridges. State cigarette tax may fund tobacco prevention programs or general state spending.
Frequently Asked Questions
Why does the federal government tax some products and not others?
Congress chooses which products to tax based on revenue needs and policy goals. Products taxed tend to be ones the government wants to discourage (cigarettes, alcohol) or ones that create public costs (fuel, which funds roads). The list reflects political decisions made over decades, not a single consistent principle.
Is federal excise tax the same in every state?
Federal excise tax rates are the same everywhere in the United States. However, most states add their own excise tax on top of the federal tax. So the total tax you pay on gasoline or cigarettes depends on both the federal rate and your state's rate. Your state's rate may be higher or lower than other states.
Can I get a refund of excise tax I paid?
In most cases, no. Excise tax is final once you purchase the product. However, businesses that use excisable goods in their operations (like a trucking company buying fuel) may be able to claim a refund or credit for certain excise taxes under specific IRS rules. Check with a tax professional if this applies to your situation.
Does excise tax apply to online purchases?
Excise tax applies to the product itself, not to where you buy it. If you order cigarettes or alcohol online, federal excise tax still applies. The seller is responsible for collecting and paying it. Sales tax rules for online purchases vary by state, but excise tax is separate and applies regardless.
What happens if excise tax rates go up?
If Congress raises an excise tax rate, the price of that product increases. Manufacturers and importers adjust their prices to cover the higher tax. You will see the increase at the pump, the store, or the ticket counter. There is no phase-in period — the new rate takes effect on the date Congress specifies in the law.