Claiming the Increased Federal Excise Tax Credit

The federal government imposes an excise tax on fuels like gasoline and diesel to fund highway infrastructure. Businesses and individuals can receive a tax credit for fuel consumed in “nontaxable uses,” which are ways that are not on public highways. This credit has gained attention for its increased value for certain environmentally friendly fuels and can reduce a filer’s annual tax liability.

Qualifying for the Fuel Tax Credit

The fuel tax credit is available to the “ultimate purchaser” of fuel who consumes it for a nontaxable purpose, meaning it was not used to power a vehicle on public roads. Common examples include fuel used on a farm for farming, in off-highway business vehicles like forklifts and generators, or for commercial fishing. State and local governments also qualify.

Eligible fuels include gasoline, undyed diesel, and undyed kerosene; dyed diesel is exempt from tax at the point of sale and does not qualify. The credit is not for personal use, so fuel for a personal lawnmower or recreational snowmobile is ineligible. A specific credit for Sustainable Aviation Fuel (SAF) applied to fuel sold or used before January 1, 2025, and was replaced by the Clean Fuel Production Credit for 2025 through 2027.

Calculating the Credit Amount

Determining the value of the fuel tax credit begins with tracking the number of gallons used for each qualifying purpose. The number of gallons of gasoline used for a nontaxable purpose is multiplied by the federal excise tax rate of $0.184 per gallon. For undyed diesel and kerosene, the rate is $0.244 per gallon.

The calculation for the Sustainable Aviation Fuel credit that was in effect through 2024 was more complex. This credit started with a base amount of $1.25 per gallon if the SAF achieved at least a 50% reduction in lifecycle greenhouse gas emissions. For every percentage point that the emissions reduction exceeded the 50% threshold, an additional amount was added, up to a maximum of $1.75 per gallon.

How to Claim the Credit

The primary method for claiming the credit is filing Form 4136, Credit for Federal Tax Paid on Fuels, which must be attached to your annual income tax return, such as a Form 1040 or Form 1120. You must maintain records of fuel purchases and usage to substantiate your claim. This documentation should include receipts showing the gallons purchased, dates of purchase, and logs detailing how the fuel was used for qualifying activities.

For those who accumulate a significant credit amount, an alternative process allows for quicker refunds. If the credit meets a minimum threshold, you can file Form 8849, Claim for Refund of Excise Taxes, on a quarterly basis using Schedule 3.