Excise Tax

AAA

DEFINITION of 'Excise Tax'

1. An indirect tax charged on the sale of a particular good.

2. A penalty tax applied to ineligible transactions in retirement accounts. This penalty is assessed by and paid to the Internal Revenue Service (IRS).

INVESTOPEDIA EXPLAINS 'Excise Tax'

1. Excise taxes are considered an indirect form of taxation because the government does not directly apply the tax. An intermediary, either the producer or merchant, is charged and then must pay the tax to the government. These taxes can be categorized in two ways:

- Ad Valorem: A fixed percentage is charged on a particular good.
- Specific: A fixed dollar amount dependent upon the quantity purchased is charged.

2. Here are some examples of situations in which excises taxes are charged on transactions in retirement accounts:

- A 6% excise tax applies to excess IRA contributions that are not corrected by the applicable deadline.
- A 10% excise tax applies to distributions from an IRA, qualified plan or 403(b) account that occur before the participant reaches age 59.5.
- A 50% excise tax applies to required minimum distribution amounts not withdrawn by the applicable deadline (referred to as an excess-accumulation penalty).

RELATED TERMS
  1. IRS Publication 510

    A document published by the Internal Revenue Service that details ...
  2. Required Minimum Distribution - ...

    The amount that Traditional, SEP and SIMPLE IRA owners and qualified ...
  3. Surtax

    A tax levied on top of another tax. A surtax can be calculated ...
  4. Corporate Tax

    A levy placed on the profit of a firm, with different rates used ...
  5. Income Tax

    A tax that governments impose on financial income generated by ...
  6. Individual Retirement Account - ...

    An investing tool used by individuals to earn and earmark funds ...
Related Articles
  1. Preparing For Retirement Plan RMD Season
    Taxes

    Preparing For Retirement Plan RMD Season

  2. Tax-Saving Advice For IRA Holders
    Taxes

    Tax-Saving Advice For IRA Holders

  3. Retirement Plan Tax Form 5329: When ...
    Taxes

    Retirement Plan Tax Form 5329: When ...

  4. An Introduction To Correcting Ineligible ...
    Taxes

    An Introduction To Correcting Ineligible ...

comments powered by Disqus
Hot Definitions
  1. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  2. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  3. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  4. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  5. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
  6. Over The Counter

    A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" ...
Trading Center