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What is Excise Tax?

Excise tax is the tax imposed on the sale or production of specific goods and services which have an impact on the economy and how the society functions. Usually, these taxes are collected at the time of manufacturing, sale, or import.

Excise taxes are often placed on products like tobacco, alcohol, gasoline in order to prevent and deter excessive use or to address environmental pollution. These type of taxes are then used to finance public initiatives and also fund vital services such as healthcare, education, and infrastructure.

In the United States, excise taxes are implemented at three different levels- federal, state, and local. The federal government collects excise tax on goods like gasoline, firearms, and medical services. State and local governments can impose their own taxes in addition to the federal taxes.

 

Types of Excise Taxes

Excise taxes are categorized into two main types:

1. Ad Valorem Tax (Tax Based on Value)  

Ad Valorem taxes are levied as a percentage of the retail price of a product or service. The amount taxed can fluctuate based on the product’s price.  

Examples:
10% excise tax is levied on indoor tanning services,10% federal excise tax is levied on firearms, 7.5% excise tax on airfare, etc.

 

2. Specific Tax (Tax Based on Unit)  

In this type, regardless of its price, certain excise taxes are imposed as a set dollar amount per unit. This type of tax is calculated based on measurable quantities like weight, volume, or size.

Examples:
Cigarettes are taxed at $1.01 per pack of 20, beer costs $3.50 for the first 60,000 barrels if its produced by small brewers, etc. 

What is Earned Income Credit (EIC)? 

The Earned Income Credit (EIC), also known as the Earned Income Tax Credit (EITC), is a tax benefit designed to support workers and families with low to moderate-income.  

It is a refundable tax credit that helps reduce the tax burden on low- and moderate-income of working people and families. Unlike a deduction that lowers taxable income, a refundable credit like the EIC can result in a refund if the credit exceeds the amount of taxes due. This means that a refund may be received even if there is little to no tax liability 

Who qualifies for Earned Income Credit (EIC)? 

To qualify for the EIC, individuals must meet the following criteria: 

General Eligibility Requirements

• Applicants must earn income through wages, salaries, self-employment, or disability benefits. 

• The total investment income must be below the IRS-specified threshold. 

• Valid Social Security number (SSN) 

• Individuals must be U.S. citizens or resident aliens for the entire tax year. 

• Those filing Form 2555 (Foreign Earned Income) are ineligible. 

• Special rules apply for individuals who are married but not filing jointly due to separation. 

 

Special Eligibility Rules

The EIC includes special considerations for: 

• Military personnel 

• Clergy members 

• Taxpayers and their relatives with disabilities 

• Special Eligibility Rules 

• Certain groups may have additional considerations for EIC eligibility: 

 

Social Security Number (SSN) Requirements

To claim the EIC, the taxpayer, spouse (if filing jointly), and any qualifying children must have a valid SSN: 

• Must be valid for employment (may state “Valid for work with DHS authorization”). 

• Must have been issued on or before the tax return due date (including extensions). 

 

Eligible Filing Statuses for EIC

The following filing statuses may qualify for the EIC: 

• Married Filing Jointly 

• Head of Household 

• Qualifying Surviving Spouse 

• Single 

• Married Filing Separately (with restrictions) 

• Special Considerations for Certain Filing Statuses 

 

Claiming the EIC Without a Qualifying Child

Individuals without qualifying children may still be eligible for the EIC if they meet all of the following conditions: 

• Satisfy the general EIC eligibility requirements. 

• Maintain their primary residence in the U.S. for more than half the year. 

• Cannot be claimed as dependent on another taxpayer’s return. 

• Are between 25 and 65 years old (at least one spouse must meet the age rule if filing jointly). 

 

Exceptions and Special Situations

• Temporary absences: A qualifying child is still considered to have lived with you if they were away for school, military service, or medical care. 

• Children born or deceased during the tax year: Special rules apply to children who were born or passed away within the tax year. 

• Kidnapped children: IRS guidelines may allow continued eligibility in cases where a child has been kidnapped. 

EIC Rates for 2024

The maximum amount of credit EIC offers are:  

• No qualifying children: $632  

• 1 qualifying child: $4,213  

• 2 qualifying children: $6,960  

• 3 or more qualifying children: $7,830 

Children or Relatives Claimed	Filing as Single, Head of Household, Married Filing Separately, or Widowed	Filing as Married Filing Jointly
0	$18,591	$25,511
1	$49,084	$56,004
2	$55,768	$62,688
3	$59,899	$66,819

What is EIN?

EIN, or employer identification number is a unique 9-digit number assigned by the IRS. It works like an SSN (social security number), by which individual resident identities are verified. The IRS issues the EIN to business entities. EIN is also popularly known as a Federal Tax Identification Number. The IRS gets information about the state where the business is registered through the employer identification number.

To identify the taxpayers who are needed to file various tax returns, the agency uses the EINs. The IRS provides the EIN with a nine-digit number in the format of XX-XXXXXXX. Businesses that have employees and pay taxes or withhold taxes from income must have EINs. Businesses need EIN for multiple purposes, such as contracts, state accounts, and banking. EIN is required during federal tax reporting.

 

Who Needs an EIN?

Business entities that have a federal tax ID in their organization must have EINs. These businesses include corporations, partnerships, multiple-member LLCs (limited liability companies), S-corps, and C-corps. However, tax-filing corporations or partnerships must have EINs, regardless of whether they have employees.

Some other business entities are also required to have EINs, and those businesses are:

• NPOs (nonprofit organizations)
• Businesses that have a Keogh plan
• Estates
• Businesses that withhold taxes
• Business entities that file excise or alcohol, tobacco, and firearms tax returns
• Government entities
• Personal service corporations
• Military entities

 

How to Get an EIN?

Getting the EIN from the IRS is completely free of cost. If you apply online, you will get the employer identification number immediately. Although foreign businesses have to file it by phone or email, as they are not allowed to apply online. For mail or fax, the businesses must fill out the SS-4 form. The information you have to put during the application of EIN is as follows:

• Businesses’ legal name
• Trade name of the business
• Business entities’ mailing address
• Number of owners of the business
• Start date or acquisition date of the business
• The name and personal taxpayer identification number
• Business type
• Principal industry of the business

Estimated tax payments are periodic payments made to the IRS by individuals and corporations that do not have taxes automatically withheld from their income. This applies primarily to self-employed individuals, freelancers, small business owners, and independent contractors. Income from interest, dividends, alimony, capital gains, and prizes may also require estimated tax payments. 

These payments cover not only income tax but also self-employment and alternative minimum taxes. The IRS requires estimated taxes to be paid quarterly- April 15, June 15, September 15, and January 15. Failure to pay on time or in full may result in penalties.  

Who Pays Estimated Tax Payments? 

Estimated tax payments are required for individuals and businesses that do not have taxes automatically withheld from their income. This includes: 

• Self-Employed Individuals & Business Owners – Sole proprietors, partners, and S corporation shareholders must make estimated tax payments if they expect to owe $1,000 or more when filing their return. 

• Corporations – Must make estimated tax payments if they expect to owe $500 or more when filing their return. 

• Prior-Year Tax Liability – If you owed taxes last year, you may need to make estimated tax payments for the current year. 

How to Calculate Estimated Tax Payments 

To calculate estimated taxes, you must determine their anticipated tax liability based on projected income, deductions, and credits. This can be done using IRS Form 1040-ES, which provides worksheets to help estimate tax payments accurately. A common method is to use the prior year’s tax return as a reference and adjust based on current income. 

For example, a freelancer who expects higher earnings this year than last should increase their estimated tax payments accordingly. Conversely, if their income decreases, they can adjust their payments for future quarters. 

Estimated Tax Payment Schedule 

Estimated taxes are paid quarterly according to the IRS schedule: 

• April 15 – Covers income earned from Jan. 1 to March 31 

• June 17 – Covers income earned from April 1 to May 31 

• Sept. 16 – Covers income earned from June 1 to Aug. 31 

• Jan. 15 (following year) – Covers income earned from Sept. 1 to Dec. 31 

If these deadlines are missed, you may face penalties, even if you are due a refund at year-end.