What is Foreign Insurance Tax?
Foreign Insurance Tax is a federal excise tax charged on specific insurance policies, reinsurance contracts, and annuity contracts issued by foreign insurance companies. This tax is charged when the policy buyer buys insurance protection from an insurance company that is not licensed within the United States.
Because foreign insurers don’t pay federal taxes in the United States, the IRS is charging this excise tax on policyholders for tax compliance and revenue collection. The tax needs to be reported and paid with Form 720 (Quarterly Federal Excise Tax Return).
Who Needs to File Form 720 for Foreign Insurance Tax
Individuals, organizations, and businesses that buy insurance, reinsurance, or annuities from foreign insurance companies must file Form 720 and pay the excise tax. These include:
U.S. Businesses – Businesses that acquire insurance coverage from foreign insurers.
Individuals – U.S. citizens who buy foreign life insurance or annuities.
Trusts & Estates – If they have policies from foreign insurance companies.
Reinsurance Agreements – If a U.S. insurance company cedes risk to a foreign reinsurer.
Foreign Insurance Tax Rates
The excise tax rates on foreign insurance policies vary based on the coverage type:
Life Insurance, Sickness, or Accident Policies – 1% of the premium value.
Casualty Insurance & Indemnity Bonds – 4% of the premium value.
Reinsurance Policies – 1% of the reinsurance premium.
The tax should be computed based on the aggregate premium paid to the foreign insurer.
How to File Foreign Insurance Tax Using Form 720
Step 1: Get Form 720
Get Form 720 from the IRS website or through an IRS-approved e-file provider.
Step 2: Fill out the Foreign Insurance Tax Section
Go to Part I, Line 9 on Form 720.
Put in the total taxable premium amount.
Compute the tax using the prevailing rates.
Step 3: Enter Business or Personal InformationPut in your name, address, EIN (Employer Identification Number), or SSN (Social Security Number).
Step 4: File the Form and Pay
E-File: The quickest and safest way is to file electronically using an IRS-authorized provider.
Mail: If filing a paper return, mail it to the correct IRS processing center.
Payment Options: Pay the excise tax through EFTPS (Electronic Federal Tax Payment System), check, or money order.
Step 5: Maintain Records
Keep a copy of the submitted Form 720 and payment confirmation for a minimum period of four years.
Form 720 Filing Due Dates
Form 720 is submitted on a quarterly basis, with the following due dates:
April 30 (January – March)
July 31 (April – June)
October 31 (July – September)
January 31 (October – December)
Delays in filing or paying may lead to IRS penalties and interest fees.
Common Errors to Avoid When Submitting
Failure to Report Foreign Insurance Coverage – When you buy insurance from a foreign insurance company, you have to report and pay tax.
Incorrect Application of Tax Rate – Use the proper tax rate depending on the kind of insurance.
Late Payment or Filing – Failure to meet deadlines may attract penalties.
Reporting on the Wrong Form – Foreign insurance tax is to be reported on Form 720, not Form 2290 or other tax forms.
Why E-File Form 720 for Foreign Insurance Tax?
E-filing Form 720 provides numerous benefits:
Quicker IRS Processing – Receive receipt confirmation in no time.
Fewer Errors – Automated calculations minimize errors.
Convenience – File anywhere, anytime.
Secure Payment Methods – Pay directly via IRS-approved systems.
If you buy insurance from a foreign insurer, it is your duty to pay the foreign insurance excise tax through Form 720. To keep in line, make sure you file on time, compute the right tax, and utilize the IRS recommended filing method.
To make the process easy, use an IRS-authorized e-file provider to file Form 720 promptly and securely.
