IRS Form 4136: How to Claim the Fuel Tax Credit

IRS Form 4136, Credit for Federal Tax Paid on Fuels, is used to claim a tax credit for the federal excise tax paid on certain fuels. When fuel is purchased from a pump, the price includes a federal excise tax. This form provides the mechanism for individuals and businesses to receive a refund of that tax when the fuel is used for a qualifying, nontaxable purpose rather than for highway transportation.

Determining Eligibility for the Fuel Tax Credit

Eligibility for the fuel tax credit hinges on being the ultimate purchaser of the fuel and using it for a qualifying purpose. The “ultimate purchaser” is the individual or entity that bought the fuel and consumed it, rather than reselling it. Individuals, corporations, partnerships, estates, and trusts can all claim the credit, provided they meet the use requirements.

The main factor for eligibility is the nontaxable use of the fuel. Broad categories of such uses include on-farm activities, off-highway business use, exporting, and use by state and local governments. For instance, a construction company using fuel in an off-highway vehicle like a bulldozer may be eligible. A farmer using fuel in a tractor for agricultural work also qualifies, as the fuel was not consumed in a vehicle registered for use on public highways.

Partnerships do not file Form 4136 directly. Instead, the partnership must provide a statement to each partner via Schedule K-1 (Form 1065). This statement details each partner’s share of the fuel gallons used, the specific nontaxable purpose, and the applicable credit rate, allowing the partners to claim their portion of the credit on their personal tax returns.

Qualifying Fuels and Nontaxable Uses

The fuel tax credit is tied to the type of fuel purchased and its use. The IRS provides detailed tables that outline these combinations, and for each claim, you must identify the correct nontaxable use number from the form’s instructions.

Gasoline

For gasoline, several nontaxable uses qualify for the credit.

• Use on a farm for farming purposes.
• Consumption in a boat engaged in commercial fishing.
• Use in off-highway business vehicles, such as generators or compressors.
• Use by nonprofit educational organizations.
• Gasoline that is exported.

Diesel Fuel and Kerosene

Undyed diesel fuel and kerosene have their own set of qualifying uses. The credit applies to undyed diesel fuel used for farming purposes, in certain buses that provide transportation to the public for a fee, or in school buses. Off-highway business use is another major category, covering fuel used in construction machinery or other vehicles not operated on public roads. Diesel fuel that has been dyed red is typically untaxed at the point of sale and is not eligible for this credit.

Alternative Fuels

The credit also extends to various alternative fuels, including liquefied petroleum gas (LPG), “P-Series” fuels, compressed natural gas (CNG), and liquefied natural gas (LNG). The credit calculation for these fuels is based on their energy equivalent compared to gasoline. The nontaxable use rules that apply to gasoline and diesel also apply to alternative fuels. For example, using LPG in a forklift for off-highway business purposes is a qualifying use.

Information and Calculations Needed for Form 4136

Accurately claiming the fuel tax credit requires you to maintain detailed records that substantiate your claim. These records must show the total gallons of fuel purchased and how many of those gallons were used for each specific qualifying purpose. Receipts from fuel purchases and detailed logs tracking usage are necessary to support the figures reported on the form.

You can download the most current version of Form 4136 and its instructions from the IRS website. The instructions contain the official tables of credit rates for each type of fuel and nontaxable use. These rates can change, so using the correct year’s form and instructions is necessary.

The form is structured as a table where you list each type of fuel and its nontaxable use. For each entry, you will enter the number of gallons used for that purpose and multiply it by the corresponding credit rate found in the instructions. After calculating the credit for each use, you sum these amounts to arrive at your total credit. The form also requires you to enter a “Type of use” number for each claim, which is found in the instructions.

Filing Form 4136 with Your Tax Return

After completing the calculations, you must attach Form 4136 to your primary income tax return, as it is a supporting document and cannot be filed by itself. For individual filers, this means attaching it to Form 1040. For corporations, it is attached to Form 1120, and for estates or trusts, it accompanies Form 1041.

The total credit amount calculated on Form 4136 is then transferred to a specific line on your main tax return. For individuals filing Form 1040, this credit is reported on Schedule 3, “Additional Credits and Payments.” For corporate filers, the credit is typically entered on Schedule J of Form 1120.

The credit directly reduces your total tax liability for the year. The IRS treats this credit as a payment you have made toward your tax bill. If the credit is larger than the tax you owe, the difference may contribute to a larger overall tax refund. Correctly filing Form 4136 ensures you recover the excise taxes you paid on fuel used for qualifying activities.