There is a 4% federal excise tax applicable to certain excess line transactions under §4371 of the United States Internal Revenue Code of 1986. However, the great majority of New York's excess line transactions are exempt from the tax. The key points for excess line brokers to understand are:
The federal excise tax does not apply to excess line transactions placed with a U.S. domiciled insurer. The federal excise tax generally applies only to transactions with alien insurers (non-U.S.) that are domiciled in countries that do not have an exemption under a treaty agreement with the United States. See the IRS Exemption from Section 4371 Excise Tax.
Any party to a transaction can be held liable for the tax, including the excess line broker, so brokers should make sure the tax is collected and paid on transactions when the tax applies.
The last U.S. domestic party in the chain of premium payment is primarily responsible for remitting the tax to the IRS. However, all of the parties to a transaction can be held liable, including an excess line broker.
The obligation to file the tax return belongs to the party paying the premium to the alien insurer or to any nonresident person, such as an alien broker.
Excise tax returns must be filed quarterly (1/31, 4/30, 7/31 and 10/31) on a Form 720, beginning with the first quarter in which an excise tax obligation arises. Payment of the tax must be made by semimonthly deposits. The deposits must be made by the 14th day following the end of the semimonthly period
For an in-depth discussion of the excise tax, see Internal Revenue Service Excise Tax – Foreign Insurance Audit Techniques Guide (ATG).
ELANY DISCLAIMER:
This is not intended to be nor should it be construed as legal advice. Consult with your own legal counsel.
Last Reviewed: 01/10/2025