What Is Fuel Tax Credit? Full Guide (2026)

The federal fuel tax credit lets businesses claim back excise taxes paid on fuel used for nontaxable purposes—like powering off-highway business equipment, farm machinery, or refrigeration units. But here's what most taxpayers don't realize: the IRS has cracked down hard on false fuel tax credit claims, assessing over $162 million in penalties since 2022.

Below, we'll cover who qualifies for the fuel tax credit, how to file your claim properly, and what you need to know to avoid costly mistakes with the Internal Revenue Service.

Key Takeaways:

• The fuel tax credit refunds federal excise taxes (18.4¢/gallon gasoline, 24.4¢/gallon diesel) paid on fuel used for off-highway business purposes
• Most taxpayers don't qualify—this credit is for businesses using fuel in equipment that doesn't operate on public highways
• New for 2024 tax year: You must file the "Statement Supporting Fuel Tax Credit Computation" with Form 4136 or risk claim denial
• $5,000 penalty per return for frivolous claims—don't follow social media tax advice

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What Is the Fuel Tax Credit?

What is a fuel tax credit and why does it exist? The primary reason for the federal fuel tax credit is to give a break to non-highway-use fuel purchases.

The federal government imposes two types of tax on gasoline and diesel fuel:

1. Excise tax – Primarily used to maintain and repair highways and support mass transit
   (18.3 cents per gallon for gasoline; 24.3 cents for diesel)
2. Cleanup tax – To address leaking underground storage tanks
   (0.1 cents per gallon on both types of fuel)

The federal tax on fuel is essentially a you-play-you-pay setup. The theory is that, regardless of income or assets, the more fuel you buy, the more strain you put on the public highway system—and thus the greater your responsibility for contributing to it.

Mostly this is true—we buy gas for cars, and we drive cars on roads. But what if you're purchasing fuel for machines that never set foot (or tire) on public highways? Understanding FMCSR can help clarify these exemptions.

Making gas stations responsible for sorting out who should or shouldn't pay the federal tax isn't practical. Instead, the excise taxes are built into gas and diesel prices, and the federal government pays it back to qualifying businesses as a credit on their income tax return. 

Who Qualifies For The Fuel Tax Credit?

Whether you run delivery management operations or are in charge of fleet management costs, it's best to know who qualifies for the fuel tax credit. The federal fuel tax credit is a business credit—an individual or a partnership cannot claim it on a personal tax return. Businesses can qualify for certain uses of:

• Regular gasoline
• Diesel fuel (undyed)
• Kerosene (undyed kerosene)
• Aviation gasoline or kerosene
• Specified alternative fuels

The most common example of nontaxable fuel use that qualifies for credit is for construction or farming equipment. However, per the IRS, the list also includes:

1. Off-highway business use (for business use other than in a highway vehicle registered or required to be registered for highway use)
2. Export
3. In a boat engaged in commercial fishing
4. In certain intercity and local buses
5. In a qualified local bus
6. In a bus transporting students and employees of schools (school buses)
7. For diesel fuel and undyed kerosene used other than as fuel in the propulsion engine of a train or diesel-powered highway vehicle (but not off-highway business use)
8. In foreign trade
9. Certain helicopter and fixed-wing aircraft use
10. Exclusive use by a qualified blood collector organization
11. In a highway vehicle owned by the United States that isn't used on a highway
12. Exclusive use by a nonprofit educational organization
13. Exclusive use by a state, political subdivision of a state, or the District of Columbia
14. In an aircraft or vehicle owned by an aircraft museum
15. In military aircraft

Note that the off-highway business use category can be applicable for many businesses that use machinery such as:

• Lawnmowers, snowblowers, and leaf blowers
• Steam cleaners and vacuums
• Generators
• Compressors and pumps
• Power saws
• Forklifts
• Bulldozers and earthmovers

Fuel Tax Credit for Trucking: Reefer Fuel

For trucking companies, one of the most overlooked fuel tax credit opportunities involves reefer fuel—diesel used to power refrigeration units on trailers. Since reefer units operate independently of the truck's engine and don't propel a highway vehicle, this fuel qualifies for the federal fuel tax credit.

Here's how to claim it properly:

• Separate your fuel purchases: Never combine reefer fuel with tractor fuel on the same receipt. This distinction is critical for your claim and IFTA compliance.
• Track with your fuel card: Many fleet fuel cards let drivers enter a specific code (like "1" for odometer) to flag reefer fuel purchases separately.
• Red-dyed diesel option: You can purchase tax-exempt red-dyed diesel for reefer tanks at truck stops, which provides the exemption upfront instead of filing for a refund later.

Important: Reefer fuel should NOT be included in your IFTA filings. Mixing reefer fuel into your power unit fuel calculations can trigger audit penalties and cost you more in fuel tax than you'd save.

How to File for a Fuel Tax Credit

Before tax season ends, you'll need to incorporate some recordkeeping. The first step in filing for a fuel tax credit is to keep track of fuel purchases and nontaxable fuel use throughout the tax year.

A simple way to approach this is to assign fuel or fleet cards by purpose as well as use. If a specified card is used solely to purchase off-highway use fuels, you'll have a simple and clean tracking mechanism and legal record of your fuel purchases.

Wondering, what is a fleet card? You can check out our blog to learn more!

New Requirement for 2024 Tax Year and Beyond

Starting with the 2024 tax year, individuals filing Form 1040 who claim nontaxable use of gasoline, aviation gasoline, undyed diesel fuel, or undyed kerosene must complete the "Statement Supporting Fuel Tax Credit (FTC) Computation – 1" and attach it to their return.

This statement requires:

• Business name and Employer Identification Number (EIN)
• Make, model, and type of machinery or vehicles used
• Comparison of the estimated fuel purchase price vs. the actual cost and how many gallons claimed

The IRS uses EIA fuel price data to verify that your claim matches realistic fuel costs. Claims that appear disproportionate to your reported income will trigger additional scrutiny.

Filing Form 4136

When tax time hits, you'll first want to ensure DOT compliance and file Form 4136, Credit for Federal Tax Paid on Fuels, with the IRS. The four-page form is broken down by type of fuel. Under each, you'll identify:

• Usage category (farming purposes, buses, trains, export, or nontaxable use)
• Specific type of nontaxable use (per the 15-item list above)
• How many gallons used

The form contains a per-gallon rate based on usage category—you'll multiply the number of gallons by that rate for each type of use. You can also find resources on how to calculate IFTA to ensure accurate filing. Many businesses may just fill out the gasoline and/or diesel sections on page one and then skip to the end to enter a total amount.

Current federal fuel tax credit rates:

Is There a Fuel Tax Credit in Your State?

When you hear a generic mention of tax credits or deductions, it's usually about federal taxes. But you may be able to double down on getting your money back if your state also offers a fuel tax credit program.

The majority of states impose a tax on fuel similar to the federal government approach—a "pay as you go" excise tax intended to be used for road construction and maintenance, as opposed to a sales tax intended to collect general use tax revenue concerning individual or business spending.

Some states, such as California and New York, also follow the IRS's lead in refunding taxes spent on fuel used in a nontaxable category (largely, if it's not used on the highway, it shouldn't be charged an excise tax to keep the highways in good repair).

Is it worth checking if your state has a fuel tax credit? Most definitely—especially if you're fueling up in high-tax states:

State Fuel Tax Rates (as of July 2025):

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Benefits of Fuel Tax Credits

Ideally, you'd never pay the excise taxes on fuel if you're using it for a nontaxable purpose, but credit is the next best option.

A tax credit provides you with a dollar-for-dollar refund of your spending on federal tax paid, as compared to a deduction, which only reduces your taxable income and tax liability. For instance, if you paid $400 for fuel used in farming equipment, you'll get $400 back with a fuel tax credit versus $100 back in a deduction (based on a 25% tax rate).

There is no cap (maximum) on the amount of fuel tax credit you can claim—it's entirely dependent on how many gallons of qualifying fuel you've purchased.

Fuel costs remain a significant expense for businesses, representing over 30% of operating costs for long-haul trucking companies. If you're paying federal fuel taxes you don't need to, pursuing a fuel tax credit can provide your company with real financial benefits and help you save money.

Tax Credit for Alternative Fuels

Fuel tax credits have also been employed to incentivize businesses to experiment with alternative fuel mixtures. These purchases may qualify for a tax credit regardless of use (including typical highway use by a standard consumer or commercial vehicle), plus additional credit if used in a nontaxable usage category. 

Currently, alternative fuels that qualify for a federal tax credit include:

• Biodiesel and agri-biodiesel mixture types 
• Compressed gas derived from biomass 
• Compressed natural gas (CNG) 
• Fischer-Tropsch process liquid fuel from coal (including peat)
• Liquefied gas derived from biomass
• Liquefied hydrogen 
• Liquefied natural gas (LNG)
• Liquefied petroleum gas (LPG) 
• Liquid fuel derived from biomass 
• Renewable diesel mixtures
• “P Series” fuels

However, note that as technologies change, the types of alternative fuel and their tax credit rates also continue to change. Consult your tax and financial professionals about fuel credits as part of new equipment and motor vehicle investment planning.

This is another area to investigate at the state level—many states offer a tax incentive for alternative fuels to influence behavior related to alternative fuel and alternative-fuel machinery and vehicles.

Frequently Asked Questions

Do truckers qualify for the fuel tax credit?

Most highway diesel used to power trucks does not qualify—the fuel tax credit is for off highway business use only. However, truckers can claim the credit for reefer fuel (diesel powering refrigeration units) and fuel used in auxiliary equipment like generators or PTOs that don't propel the vehicle on public highways.

What is Form 4136?

Form 4136, Credit for Federal Tax Paid on Fuels, is the IRS form used to claim a refund of federal excise taxes on fuel used for nontaxable purposes. You file it with your annual income tax return.

How much is the fuel tax credit per gallon?

The federal fuel tax credit is $0.183 per gallon for gasoline and $0.243 per gallon for undyed diesel fuel and kerosene. These rates equal the federal excise taxes paid at the pump.

Can I claim fuel tax credit for my personal vehicle?

No. The fuel tax credit is a business credit only. Fuel used for personal vehicles, commuting to work, or rideshare driving (Uber/Lyft) does not qualify.

What is the penalty for false fuel tax credit claims?

The IRS imposes a $5,000 civil penalty per return under IRC Section 6702(a) for frivolous fuel tax credit claims. This penalty applies to each spouse on joint returns.

Does reefer fuel qualify for fuel tax credit?

Yes. Diesel used to power refrigeration units (reefer tanks) on trailers qualifies because it powers equipment that doesn't propel a highway vehicle. You must track reefer fuel purchases separately from tractor fuel.

What documentation do I need for fuel tax credit?

You need fuel purchase receipts showing date, location, gallons, and price. For tax year 2024 and beyond, you must also file the "Statement Supporting Fuel Tax Credit Computation" listing your business EIN, equipment make/model, and fuel cost verification.

When is the fuel tax credit due?

You claim the fuel tax credit when you file your annual income tax return using Form 4136. There's no separate deadline—it's part of your regular tax filing.

Is the fuel tax credit refundable?

Yes. The fuel tax credit is a refundable credit, meaning you receive the full amount back even if it exceeds your tax liability.

AtoB: A Path to Saving Company Dollars

Knowledgeable tax and financial planning is key to trimming your tax costs and keeping accurate records of every fuel purchase. But how else can you reduce your fuel budget before tax season hits?

The AtoB fuel card is a unique option to save money on professional vehicle use, whether you're an owner-operator or a fleet manager. Unlike other fuel discount cards, AtoB offers transparent pricing with plans starting at $3/card/month and average diesel discounts of $0.45–$2.00 per gallon at truck stops nationwide.

How AtoB helps with fuel tax credit documentation:

• Automatic purchase tracking: Every fuel transaction is logged with date, location, gallons, and amount—exactly what you need to support your Form 4136 claim
• Separate transaction types: Flag reefer fuel purchases separately from tractor fuel for clean IFTA and tax credit filing
• Detailed reporting dashboard: Export fuel purchase data anytime to document your nontaxable fuel use

Plus, the AtoB fuel card allows you to charge fuel, repairs and parts, road tolls, insurance, and more at any location or vendor that accepts Visa cards. This means you can always opt for the lowest-priced or most immediate option, whether that's a major chain or a mom-and-pop station or repair shop. And through our accessible platform, you can easily monitor the costs and minimize the risk of fuel card fraud.

AtoB offers the most flexible and easy-to-start fuel cards program to single-owner LLCs, OTR trucking companies, and everyone in between. Learn more and get started with an AtoB OTR fuel card today.

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References:

U.S. Energy Information Administration. How much tax do we pay on a gallon of gasoline and on a gallon of diesel fuel?
https://www.eia.gov/tools/faqs/faq.php?id=10&t=5

IRS. Fuel Tax Credit.
https://www.irs.gov/credits-deductions/businesses/fuel-tax-credit

IRS. Instructions for Form 4136 (2025).
https://www.irs.gov/instructions/i4136

Tax Foundation. 2025 Gas Taxes by State.
https://taxfoundation.org/data/all/state/gas-taxes-state/

California Department of Tax and Fee Administration. Tax Rates for Motor Vehicle and Diesel Fuels (July 2025).
https://cdtfa.ca.gov/formspubs/l978.pdf

Alternative Fuels Data Center. Clean Fuel Production Credit.
https://afdc.energy.gov/laws/13321