The federal diesel tax is 24.4 cents per gallon, and it has sat at that rate since 1993. The figure combines a 24.3-cent excise tax with a 0.1-cent fee that funds the Leaking Underground Storage Tank Trust Fund.1U.S. Energy Information Administration. How Much Tax Do We Pay on a Gallon of Gasoline and on a Gallon of Diesel Fuel? Drivers don’t hand it over at the pump; it’s collected upstream from fuel terminals and folded into the wholesale price. Businesses that burn diesel off the highway, on a farm, a construction site, or in stationary equipment, can get the excise portion back.
The Rate and Why Diesel Pays More Than Gasoline
The excise tax is set by 26 U.S.C. ยง 4081.2Office of the Law Revision Counsel. 26 USC 4081 – Imposition of Tax Add the 0.1-cent underground storage tank fee and the combined federal rate reaches 24.4 cents per gallon. Gasoline, by comparison, is taxed at 18.4 cents per gallon. Diesel carries the heavier rate because the trucks and heavy equipment running on it cause significantly more road wear than passenger cars.
Because the rate is a fixed cents-per-gallon figure rather than a percentage of price, it doesn’t move with inflation. Over three decades, its purchasing power has fallen by roughly half. States layer their own diesel taxes on top, and those amounts vary widely, so the 24.4 cents is only the federal slice of what shows up in the pump price.
Where the Tax Is Actually Collected
The federal diesel tax is not collected from the driver. It’s imposed when fuel is removed from a storage terminal at what the industry calls the “terminal rack,” or when it enters the country through importation.3eCFR. 26 CFR 48.4081-2 – Taxable Fuel; Tax on Removal at a Terminal Rack The companies operating or buying fuel at these terminals pay the tax to the IRS. By the time diesel reaches a gas station or a fleet’s bulk tank, the tax is already priced in.
Collecting early keeps enforcement manageable. The IRS deals with a small number of terminal operators, refiners, and importers rather than auditing millions of retail transactions. The tradeoff is that end users rarely see the tax as a separate line item, which is why many people assume it’s collected at the pump.
Where the Money Goes
Diesel tax revenue flows into the Highway Trust Fund, which has two accounts.4Bureau of Transportation Statistics. Transportation Economic Trends: Government Transportation Revenue – Trust Funds Of every 24.4 cents collected, 21.44 cents goes to the Highway Account for road construction, bridge repair, and maintenance. Another 2.86 cents goes to the Mass Transit Account for bus and rail infrastructure. The remaining 0.1 cent funds the Leaking Underground Storage Tank Trust Fund.5Federal Highway Administration. Highway Trust Fund and Taxes – FAST Act Fact Sheets
The Highway Trust Fund has consistently spent more than it collects. Since 2008, Congress has transferred roughly $275 billion from the general fund to keep the accounts solvent. Fuel efficiency keeps improving, electric vehicles pay no fuel tax at all, and the rate hasn’t changed since 1993.
Dyed Diesel: The Tax-Free Version
Not every gallon of diesel owes the excise tax. Fuel destined for nontaxable use can be dyed and sold tax-free, provided it’s indelibly dyed by mechanical injection at the terminal and meets IRS marking requirements.6Office of the Law Revision Counsel. 26 USC 4082 – Exemptions for Diesel Fuel and Kerosene The dye is typically red, and inspectors use it as the visual signal that the fuel was sold without highway tax.7Internal Revenue Service. IRS Announces Waiver of Dyed Fuel Penalty in Florida Due to Hurricane Dorian
Dyed diesel is legal for off-highway purposes: farm equipment working in fields, construction machinery on job sites, stationary generators, and similar industrial uses. It is illegal to put dyed diesel in any vehicle registered for use on public roads. When someone burns undyed (taxed) diesel for a qualifying off-highway purpose, the tax can be recovered through a credit or refund instead.
Getting the Tax Back on Off-Highway Fuel
If you paid the 24.3-cent excise tax on diesel that was ultimately used for a nontaxable purpose, you can recover it through the IRS. The qualifying categories cover more than farming:
- Fuel used on a farm for farming purposes, one of the most commonly claimed categories.8Internal Revenue Service. Fuel Tax Credit
- Diesel used in school buses, which qualifies for the full excise tax credit.
- Diesel powering qualified intercity or local transit buses, which earns a partial credit of 17 cents per gallon rather than the full 24.3 cents.9Internal Revenue Service. Form 4136 – Credit for Federal Tax Paid on Fuels
- Undyed diesel sold by a registered vendor to a state or local government for its exclusive use.10Internal Revenue Service. Instructions for Form 4136 and Schedule A
- Commercial fishing vessels and certain export uses. The full list appears in the IRS instructions for Form 4136.
Two forms handle these claims. Form 4136 is the standard route for most individuals and small businesses. You attach it to your annual income tax return, and the credit reduces your tax liability; if it exceeds what you owe, the IRS refunds the difference.11Internal Revenue Service. About Form 4136, Credit for Federal Tax Paid on Fuels
Form 8849 is for businesses that want their money back faster than once a year. It allows quarterly refund claims, but each claim must total at least $750. Fall short and you either combine multiple quarters or wait for the amount to build up.12Internal Revenue Service. Instructions for Schedule 6 (Form 8849) The filing window is the first quarter after the last quarter covered by the claim, so first-quarter fuel must be claimed no later than the end of the second quarter.13Office of the Law Revision Counsel. 26 USC 6427 – Fuels Not Used for Taxable Purposes
Processing speed depends on how you file. Electronically filed claims on Schedules 2, 3, or 8 of Form 8849 are typically processed within 20 days. All other schedules take up to 45 days.14Internal Revenue Service. Frequently Asked Questions – Form 8849, Claim for Refund of Excise Taxes Paper is slower and more error-prone.
Records You Need to Keep
The IRS won’t accept a fuel tax credit without documentation behind it. Your records should include the gallons purchased with the date and the seller’s name and address, the total gallons used for each nontaxable purpose broken out by category, and the type of fuel involved (undyed diesel, dyed diesel, kerosene, or another taxable fuel).10Internal Revenue Service. Instructions for Form 4136 and Schedule A
Keep invoices, receipts, and usage logs for at least three years after filing the return that includes the credit, longer if Form 8849 claims span multiple quarters. The line between highway gallons and nontaxable gallons is where most claims get scrutinized, so tracking fuel by equipment or vehicle beats estimating after the fact.
Penalties Worth Knowing About
Putting dyed diesel in a highway vehicle is one of the more expensive mistakes a business can make. The federal penalty is the greater of $1,000 or $10 for every gallon of dyed fuel involved.15Office of the Law Revision Counsel. 26 USC 6715 – Dyed Fuel Sold for Use or Used in Taxable Use, Etc. For a truck with a 150-gallon tank, that’s $1,500 on a single fill-up. Repeat offenders face escalating penalties: the $1,000 base multiplies by the number of prior violations, so a third offense starts at $3,000 before the per-gallon calculation applies.
State penalties often stack on the federal fine. Enforcement typically happens at roadside inspections where officers sample fuel from the tank; if the sample shows dye, the driver and the vehicle owner can both be penalized. During emergencies like hurricanes, the IRS has occasionally waived these penalties to allow dyed diesel in highway vehicles when undyed supplies run short, but those waivers are narrow and temporary.
On the credit side, filing an incorrect fuel tax credit claim triggers a flat $5,000 penalty per occurrence, whether or not the error was intentional.8Internal Revenue Service. Fuel Tax Credit The IRS has flagged the fuel tax credit as an area with historically high rates of erroneous claims, particularly from taxpayers who misclassify highway fuel as off-highway use or claim credits for fuel they never purchased. That $5,000 is separate from any accuracy-related or fraud penalties the IRS may impose, and a questionable claim can delay or trigger an audit of your entire return.
If You Produce, Distribute, or Import Diesel
Businesses that produce, distribute, or import diesel fuel must register with the IRS before starting those activities. Registration is done through Form 637, which covers terminal operators, refiners, blenders, and other participants in the fuel supply chain.16Internal Revenue Service. Application for Registration (For Certain Excise Tax Activities) Applicants for certain fuel activity codes go through a screening that examines compliance history, including whether the applicant or any related person has been assessed fraud penalties, convicted of tax crimes, or had a prior registration revoked.17Internal Revenue Service. Form 637 Excise Tax Registrations
Failing to register carries a $10,000 penalty for the initial violation, plus $1,000 for each additional day of noncompliance.18Office of the Law Revision Counsel. 26 USC 6719 – Failure to Register Those numbers accumulate quickly, and the IRS treats unregistered fuel operations as a serious enforcement priority.