The federal tax on diesel fuel is 24.4 cents per gallon, and it has been at that rate since October 1, 1993. The figure is a flat volumetric tax, meaning it does not move with the pump price: the same 24.4 cents applies whether diesel sells for $3 or $5 a gallon. It is collected far upstream in the supply chain, but the cost is built into every wholesale and retail transaction, so truckers, farmers, and fleet operators ultimately pay it at the pump.
How the 24.4 Cents Breaks Down
The rate has two pieces. The base excise tax is 24.3 cents per gallon under 26 U.S.C. § 4081, the statute that also taxes gasoline and kerosene. Added on top is a 0.1-cent Leaking Underground Storage Tank Trust Fund financing rate, which pays for investigating and cleaning up petroleum releases from underground tanks at gas stations and fuel depots.1Office of the Law Revision Counsel. 26 USC 4081 – Imposition of Tax
For comparison, the federal tax on gasoline is 18.4 cents per gallon (18.3 cents base plus the same 0.1-cent surcharge). Diesel carries the higher rate because diesel engines predominantly power heavier trucks and buses, which cause more road wear per mile than passenger cars. Neither the base rate nor the surcharge is indexed to inflation, which is why the number has stayed flat for more than three decades.
Where the Money Goes
Nearly all of the diesel tax flows into the federal Highway Trust Fund. Of each gallon’s 24.4 cents, 21.44 cents goes to the Highway Account for road and bridge construction and maintenance, and 2.86 cents goes to the Mass Transit Account, which funds buses, rail systems, and ferries.2Federal Highway Administration. Highway Trust Fund and Taxes – FAST Act Fact Sheets Fuel taxes supply roughly 83 percent of the fund’s revenue, with the balance coming from taxes on tires and heavy vehicles.
Who Actually Pays It
The taxable event under § 4081 is the removal of fuel from a refinery or terminal, or the entry of imported fuel into the United States. In practice, that means the tax attaches at the terminal rack, the point where diesel leaves bulk storage and enters a tanker truck for delivery.1Office of the Law Revision Counsel. 26 USC 4081 – Imposition of Tax
The party legally responsible for remitting the tax to the IRS is the “position holder,” defined in federal regulations as the person or company that holds the inventory position in the fuel on the terminal operator’s records. Usually that’s whoever has a storage and terminaling contract at the facility. A terminal operator that owns fuel in its own terminal is also a position holder. Importers bear the obligation for fuel brought in from abroad.3eCFR. 26 CFR 48.4081-1 – Taxable Fuel Definitions
None of this means the position holder absorbs the cost. The tax gets priced into every downstream sale, so the person pumping diesel into a truck or tractor is paying it, even though the check to the IRS was written far up the chain.
Dyed Diesel and Exempt Uses
Not every gallon of diesel is bound for a public road, and Congress does not tax fuel that will never wear one out. Under 26 U.S.C. § 4082, diesel sold for a nontaxable use is exempt from the excise tax if the fuel is permanently dyed and meets IRS marking requirements. The dye is injected mechanically at the terminal before the fuel leaves, giving it a distinct color that separates it from taxable “clear” diesel.4Office of the Law Revision Counsel. 26 USC 4082 – Exemptions for Diesel Fuel and Kerosene
Common exempt uses include farming equipment that stays on the property, stationary generators, railroad locomotives, and vehicles operated by state and local governments. The definition ultimately traces back to the uses exempt under 26 U.S.C. § 4041(a)(1), which covers off-highway business use and certain governmental uses.
Enforcement is straightforward because the dye is visible. An inspector can sample a truck’s fuel tank at a weigh station or a roadside stop and see immediately whether dyed fuel is present, and the IRS and state agencies use testing equipment sensitive enough to catch trace amounts.
Penalties for Misusing Dyed Diesel
Running dyed diesel in a highway vehicle is expensive. Under 26 U.S.C. § 6715, the civil penalty for each violation is the greater of $1,000 or $10 for every gallon of dyed fuel involved. A 100-gallon saddle tank on a pickup means a $1,000 penalty; a 300-gallon tank on a semi means $3,000. The same penalty reaches anyone who sells dyed fuel knowing the buyer plans to use it on the road, or who tampers with the dye to hide the fuel’s tax-exempt status.5Office of the Law Revision Counsel. 26 USC 6715 – Dyed Fuel Sold for Use or Used in Taxable Use
Repeat offenders face steeper numbers. The statute multiplies the $1,000 floor by the number of prior penalties imposed on the same person, related persons, or predecessors, always compared against the $10-per-gallon alternative, with the higher amount applying. A second offense starts at $2,000, a third at $3,000, and so on.
Willful attempts to evade the excise tax can also be prosecuted as a felony under 26 U.S.C. § 7201, which carries a maximum fine of $100,000 for individuals ($500,000 for corporations) and up to five years in prison.6Office of the Law Revision Counsel. 26 USC 7201 – Attempt to Evade or Defeat Tax
Getting the Tax Back on Exempt-Use Fuel
If you bought clear (taxed) diesel and used it for a nontaxable purpose, you can recover the excise tax you already paid. The IRS provides two paths.
Form 4136 on Your Income Tax Return
Form 4136 lets individuals and businesses claim the fuel tax credit directly on their annual income tax return. You report gallons used for each qualifying purpose, and the credit reduces income tax liability dollar for dollar. It is filed with your regular return on the standard filing schedule.7Internal Revenue Service. About Form 4136, Credit for Federal Tax Paid on Fuels The instructions list allowable uses line by line, including farming, commercial fishing, and off-highway business use, and each batch of gallons has to be matched to the correct category.8Internal Revenue Service. Instructions for Form 4136 and Schedule A
Form 8849 for a Standalone Refund
Government entities, tax-exempt organizations, and others who do not file income tax returns use Form 8849 with Schedule 1 to claim a direct refund of excise taxes paid. The annual Form 8849 must be filed within three years following the close of the taxable year in which the fuel was used.9Internal Revenue Service. Form 8849 – Claim for Refund of Excise Taxes Electronic filing is available through IRS e-file and produces faster results than paper.
Records You Need to Keep
Either form requires records that substantiate every gallon you claim. The Form 4136 instructions call for:
- Purchase details: the seller’s name and address, the date of purchase, and the amount of fuel bought
- Use documentation: the type of fuel, the specific nontaxable use, and the dates the fuel was consumed
- Tax payment proof: evidence that the excise tax was actually paid on that fuel
- Claimant status: information supporting your status as the ultimate purchaser or a registered vendor
Keep the records at least three years from the due date of the return on which you claimed the credit. If income is underreported by more than 25 percent of gross income, the retention period extends to six years. If a return is never filed or is fraudulent, there is no time limit.10Internal Revenue Service. How Long Should I Keep Records
Biodiesel and Renewable Diesel
Biodiesel and renewable diesel are taxed at the same 24.4-cent rate as petroleum diesel when removed from a terminal for highway use. There is no discount at the excise tax level for being a biofuel.
Favorable treatment for biofuels comes through separate credits. The biodiesel mixture credit that once provided $1.00 per gallon expired for sales or uses after December 31, 2024, and is not available in 2026.11Internal Revenue Service. Excise Fuel Incentive Credits for Businesses Two credits remain in play. The small agri-biodiesel producer credit under 26 U.S.C. § 40A provides 20 cents per gallon for qualifying producers with annual capacity of 60 million gallons or less, capped at 15 million gallons per producer per year; it runs through December 31, 2026, and starting mid-2025 requires feedstock produced or grown in the United States, Mexico, or Canada.12Office of the Law Revision Counsel. 26 USC 40A – Biodiesel and Renewable Diesel Used as Fuel The Section 45Z clean fuel production credit took effect on January 1, 2025, and runs through 2029, covering domestically produced clean transportation fuels including qualifying diesel alternatives; the credit varies based on the fuel’s lifecycle emissions factor rather than a flat per-gallon amount.13Internal Revenue Service. Clean Fuel Production Credit
State Taxes and Interstate Trucking
The federal excise tax is only one layer. Every state imposes its own diesel tax, and rates range from roughly 9 cents to over 97 cents per gallon. Trucking companies that cross state lines use the International Fuel Tax Agreement (IFTA), which lets a carrier file a single quarterly return with its base jurisdiction; that jurisdiction then redistributes the money among member states and Canadian provinces based on miles driven in each.
IFTA applies to “qualified motor vehicles” used to transport people or property, meaning vehicles with two axles and a gross vehicle weight over 26,000 pounds, three or more axles regardless of weight, or a combination that exceeds 26,000 pounds. Recreational vehicles are excluded unless used in a business. A diesel-powered vehicle that meets any of those thresholds and travels between two or more IFTA jurisdictions needs IFTA credentials, and the operator must track miles and fuel purchases by jurisdiction.
What Legally Counts as Diesel
The federal definition of diesel fuel under 26 U.S.C. § 4083 is broader than many people expect. It covers any liquid, other than gasoline, that is suitable for use in a diesel-powered highway vehicle or train. It also includes transmix, a byproduct created when different fuel products mix during pipeline transport, and any diesel blend stocks identified by the IRS. If a liquid can power a diesel engine on a road, it falls under the tax regardless of what the seller calls it.14Office of the Law Revision Counsel. 26 USC 4083 – Definitions; Special Rule; Administrative Authority