Katerina Swanson
The Fuel Tax Credit is a program that allows some businesses to reduce their taxable income based on specific types of fuel costs. It is not available to most taxpayers and is limited to off-highway business use, agriculture and farming, and boats and buses. The credit is available only for non-taxable uses of undyed diesel, and diesel vehicle owners may be eligible for a credit for blending a diesel-water fuel emulsion. Diesel that has been dyed red is typically untaxed, and undyed diesel is taxed.
| Characteristics | Values |
|---|---|
| Purpose | To offset the tax that the U.S. government charges on fuels such as gasoline and diesel in specific circumstances |
| Applicability | Only available for nontaxable uses of gasoline, aviation gasoline, undyed diesel and undyed kerosene |
| Nontaxable uses | Off-highway business use (e.g. equipment, machines, vehicles, and tools that operate on private property, farms, or construction sites, not public roads), agriculture and farming, and boats and buses |
| Tax credit calculation | Based on the number of gallons used for each nontaxable purpose, multiplied by the per-gallon rate |
| Form | 4136, Credit for Federal Tax Paid on Fuels |
| Fraud penalty | $5,000 or more, plus possible jail time |
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What You'll Learn
Eligibility criteria for diesel fuel credit
The Fuel Tax Credit is not available to most taxpayers. It is meant for offsetting the tax that the U.S. government charges on fuels such as gasoline and diesel in specific circumstances. The Internal Revenue Service (IRS) taxes these fuels mainly to fund highway maintenance, imposing the tax when the fuel is purchased. The credit is available only for nontaxable uses of gasoline, aviation gasoline, undyed diesel, and undyed kerosene. Nontaxable uses are purposes where fuel isn’t used for regular driving purposes, such as off-highway business use, agriculture and farming, and boats and buses.
To be eligible for the Fuel Tax Credit, you must meet certain criteria. The "ultimate user" of a fuel is typically eligible for a credit for untaxed use. For example, a taxpayer who owns a landscaping business and uses power lawn mowers and chainsaws in their business would qualify for the credit. However, a taxpayer who uses gasoline to power a lawn mower to mow their own yard would not qualify.
The eligibility criteria for this credit include a large variety of fuel types, such as the type of fuel that commercial fishermen use to run their boats and the strain of fuel that a warehouse uses to operate its forklifts. School bus companies may also qualify, as well as some non-profit organizations.
For diesel fuel specifically, there are additional eligibility criteria. Under the Fuel Tax Act 2006, businesses wishing to seek a fuel tax credit for the use of diesel fuel in a heavy road vehicle must satisfy one of four environmental criteria. These criteria include the vehicle's weight, the type of fuel used, and the vehicle's age. Additionally, if the vehicle is part of an accredited audited maintenance program or passes the Australian Transport Council's in-service emission standard for diesel vehicles ("DT80" test), the fuel used in the vehicle may be eligible for the fuel tax credit.
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Filling Form 4136
Form 4136, Credit for Federal Tax Paid on Fuels, is used by taxpayers to claim a credit for federal tax paid on fuels. The form lists dozens of uses in which fuel taxes either don't apply or are reduced. This includes undyed diesel fuel used in farming or for some bus transportation. The form must be attached to the taxpayer's tax return and cannot be used by partnerships or ultimate vendors to make gasoline claims.
To fill Form 4136, begin with the introductory material on the form, which includes information on future developments, what's new, and reminders. Review the general instructions section, which explains the purpose of the form, who can claim, additional information, record-keeping, and how to include the fuel tax credit in income.
Proceed to the specific instructions section, which provides detailed guidance on how to make a claim. This includes information on the amount of credit, exported taxable fuel, type of use table, and instructions for each line of the form.
Finally, review the notices section, which includes a Paperwork Reduction Act Notice. These instructions are for filling out the form only and do not include information on how to submit it.
To submit Form 4136, complete all the required information for each claim and attach any separate statements showing additional information needed for your claim, such as the computation of the amount to be credited. Ensure your name and taxpayer identification number (TIN) are written on each statement.
Form 4136 should be attached to your tax return and submitted by the applicable due date. Some common tax filing deadlines include: April 15 for individual taxpayers filing Form 1040 or 1040-SR, March 15 for partnerships and S corporations filing Form 1065 or 1120-S, April 15 for C corporations filing Form 1120 or 1120-A, and April 15 for estates and trusts filing Form 1041.
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Diesel fuel credit fraud
The Fuel Tax Credit is a program that allows some businesses to reduce their taxable income dollar for dollar based on specific types of fuel costs. The credit is available for nontaxable uses of gasoline, undyed diesel, and undyed kerosene. Nontaxable uses refer to purposes where fuel is not used for regular driving purposes, such as off-highway business use, agriculture, farming, and boats and buses. The eligibility criteria for this credit include a large variety of fuel types, such as the fuel used by commercial fishermen to run their boats.
The Fuel Tax Credit is listed by the IRS as one of the most often misused or abused tax credits. Fraud involving this credit can result in a penalty of $5,000 or more, as well as jail time. For instance, in March 2020, a Colorado court sentenced Matthew Taylor to 83 months in prison for his role in a biodiesel tax credit fraud scheme. Taylor and his co-conspirators scammed the government by filing false claims for tax credits, resulting in a loss of approximately $7.2 million for the government.
Another example of diesel fuel credit fraud was a large-scale diesel fuel theft scheme involving 25 people and four companies operating in New Jersey, Pennsylvania, New York, Connecticut, and Massachusetts. The enterprise used credit card "skimmers" to steal financial information and create "cloned" cards, which were then used to make fraudulent fuel purchases. The stolen diesel fuel was delivered to customers, including trucking companies and other fuel providers, earning the enterprise illicit profits of $3.4 million during the investigation period.
Trucking companies have also been battling fuel card fraud, which has seen a significant increase in recent years, partly due to the high price of diesel making it a more attractive target for fraudsters. Fuel card fraud can be categorized into third-party fraud and friendly fraud. Companies have implemented various tactics to block thefts, but the number of attempts remains high, with a typical fuel transaction for a trucking company ranging from $400 to $600.
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Diesel fuel credit for farming
The Fuel Tax Credit is a program that allows some businesses to reduce their taxable income based on specific types of fuel costs. The credit is available for nontaxable uses of gasoline, aviation gasoline, undyed diesel, and undyed kerosene. Nontaxable uses refer to purposes where fuel is not used for regular driving, such as off-highway business use. Off-highway business use includes equipment, machines, vehicles, and tools that operate on private property, farms, or construction sites, rather than on public roads.
Diesel fuel used in farming or for some bus transportation can qualify for the Fuel Tax Credit. The credit amounts to $0.243 per gallon of undyed diesel fuel used for agricultural purposes on a farm. To claim the credit, farmers must file Form 4136 with their individual tax return. This form requires information such as the number of gallons of fuel used for each nontaxable purpose and the associated per-gallon rate.
It is important to note that dyed or "farm" diesel is not eligible for the Fuel Tax Credit because the excise taxes being refunded were not paid at the time of purchase. Additionally, the Fuel Tax Credit is not available to most taxpayers, and it is generally limited to off-highway business use, agriculture, farming, and boats and buses.
Before filing taxes, farmers should carefully review the requirements and any applicable changes to Form 4136 for the relevant tax year. In 2024, for example, a new Fuel Tax Credit Statement was required to be included with all claims, and farmers needed to provide information such as the name and Employer Identification Number of the business where the fuel was used, as well as the make, model, and type of machinery or vehicle for which the fuel was purchased.
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Alternative fuel credit
The Fuel Tax Credit is not available to most taxpayers. It is meant to offset the tax that the US government charges on fuels such as gasoline and diesel in specific circumstances. The Internal Revenue Service (IRS) taxes these fuels to fund highway maintenance, and the tax is imposed when the fuel is purchased.
The Fuel Tax Credit is available only for non-taxable uses of gasoline, aviation gasoline, undyed diesel, and undyed kerosene. Non-taxable uses refer to purposes where fuel isn't used for regular driving, such as off-highway business use for equipment, machines, vehicles, and tools that operate on private property, farms, or construction sites, rather than public roads.
The Alternative Fuels Tax Credit is a non-refundable tax credit awarded to taxpayers who use non-alcohol alternative fuels. These fuels are either sold commercially by the taxpayer or used in the taxpayer's vehicles for business. The credit is detailed in the Internal Revenue Code (IRC) and was influenced by the American Jobs Creation Act of 2004, the Safe, Accountable, Flexible, Efficient Transportation Equity Act of 2005, and the Energy Policy Act of 2005. The credit is meant to incentivize the production, sale, and use of these fuels, and it is available for fuels such as natural gas, liquefied hydrogen, propane, P-Series fuel, liquid fuel derived from coal through the Fischer-Tropsch process, and compressed or liquefied gas derived from biomass.
To qualify for the Alternative Fuels Tax Credit, the fuel composition, the way the fuel is used, and the excise tax payment procedure must be clearly outlined. Providers and blenders must also register with the IRS. Forms 8849, 4136, 6478, or 8864 can be used to make a claim for alcohol, biodiesel, renewable diesel, or an alternative fuel used to produce a mixture. The Alternative Fuels Tax Credit will expire at the end of 2024, on December 31, 2024, unless Congress extends it.
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Frequently asked questions
The Fuel Tax Credit is a program that lets some businesses reduce their taxable income based on specific types of fuel costs. The credit is available only for nontaxable uses of gasoline, undyed diesel, and undyed kerosene.
The eligibility criteria for this credit include a large variety of fuel types and their usage. For example, commercial fishermen using boats, warehouses using forklifts, and school bus companies may qualify. Non-profit organizations could also be eligible even if they are using vehicles on a roadway.
To claim the Fuel Tax Credit, you must complete Form 4136, Credit for Federal Tax Paid on Fuels. This form lists dozens of uses in which fuel taxes either don't apply or are reduced. For each nontaxable use, you enter the number of gallons used and then multiply by the per-gallon rate listed on the form.
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