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Posted by Dennis Jao

What Is The Fuel Tax Credit?

What Is The Fuel Tax Credit?

The Federal Fuel Tax Credit is a program that allows businesses to reduce their taxable income dollar by dollar-based on specific types of fuel costs. The fuel tax credit encourages the production and use of renewable fuels. This credit is generally not available to individual taxpayers, as it is limited to uses that include off-road commercial use, agriculture and farming, as well as buses and boats.

Understanding the fuel tax credit

The fuel tax credit is used to offset the US government's tax on fuels such as gasoline and diesel in specific circumstances. The Internal Revenue Service (IRS) taxes these fuels primarily to fund road maintenance, imposing the tax at the purchase of the fuel. Since it is not possible to separate taxable and non-taxable fuel use at the time of purchase, almost everyone pays for it. However, not everyone uses fuel for taxable purposes.

It encourages the use of renewable resources

As this tax will reimburse fuel taxes dollar for dollar, some companies may see an advantage in adding renewable fuel to their existing fuel formulas to qualify for the credit. However, as technology and the automotive industry continue to evolve and adapt, the specific types of fuel eligible for a tax credit will also change based on intended uses.

Who is eligible?

The eligibility criteria for this credit include a wide variety of fuel types, including the type of fuel that commercial fishermen use to move their boats and the fuel load that a warehouse uses to drive their forklifts, for example. School bus companies may also be eligible. If you are a non-profit organization, you may be eligible even if you use vehicles on the highway.

How can I claim the federal fuel tax credit?

The first step is to determine if you qualify for the Federal Fuel Tax Credit. The IRS has uncovered significant fraud associated with the fuel tax credit and is looking for fraudulent claims. Credit is not available to most taxpayers, but only to qualified taxpayers, such as taxpayers who are engaged in farming. However, some unqualified taxpayers need credit to increase their refunds. Fuel tax credit fraud can result in a fine of $5,000.

Qualified Taxpayers

The credit is available to qualifying taxpayers for the amount of excise duty included in the price of gasoline used on a farm for agricultural purposes, for other off-road commercial uses, by local transit systems, and by intercity operators, school or local buses. A special rule applies to diesel and aircraft fuel.

Form 4136

Typically, qualifying taxpayers can claim fuel taxes as an income tax credit in the year in which the qualifying use occurred. A claim for the credit is filed in the taxpayer's income tax return and must be accompanied by Form 4136, "Credit for Federal Tax Paid on Fuels," used to calculate the credit.

The credit can be claimed within three years from the filing date of the statement on which the credit can be claimed or within two years from the tax payment, if applicable. Suppose the loan amount is $1,000 or more for diesel or gasoline and specialty motor fuels used in any of the first three quarters of the fiscal year ($ 200 for alcohol mixture). In that case, the taxpayer can choose to file a quarterly claim for refund.


A special rule applies to associations. Partnerships (except for the choice of large partnerships) cannot use Form 4136. Instead, they must include a statement on Schedule K-1 (Form 1065) indicating the allocation for each partner specifying the number of gallons for each fuel used during the year, the applicable credit per gallon, tax-free use or sale, and any additional information that must be provided.



Dennis Jao
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