What does the gas tax pay for? At the federal level, every gallon of gasoline you buy sends 18.4 cents into the Highway Trust Fund, which is split three ways: 15.44 cents for highways and bridges, 2.86 cents for public transit, and 0.1 cent for cleaning up leaking underground fuel tanks. Diesel is taxed at 24.4 cents per gallon and follows a similar split, with most of it going to the Highway Account. State gas taxes, which range from 9 cents per gallon in Alaska to 70.9 cents in California as of January 1, 2026, largely pay for road maintenance closer to home, though a fair number of states also divert some of that revenue to schools, police, and other non-transportation spending.1U.S. Energy Information Administration. Many States Slightly Increased Their Taxes and Fees on Gasoline
The tax is collected from distributors at the wholesale level under 26 U.S.C. § 4081, so you never see it as a line item on the receipt.2Office of the Law Revision Counsel. 26 U.S. Code 4081 – Imposition of Tax It’s baked into the pump price. Here’s what each slice actually funds.
Highways and Bridges
The Highway Account is the biggest bucket, taking 15.44 cents from every gallon of gasoline and the bulk of the diesel tax.3Office of the Law Revision Counsel. 26 U.S.C. 9503 – Highway Trust Fund The money flows to states through formula-based apportionments calculated from lane miles, traffic volume, and road conditions, so every state gets a guaranteed share. States use it to resurface interstates, rebuild structurally deficient bridges, and widen bottleneck corridors. Projects that cross state lines or carry national freight generally take priority, which is why federal dollars concentrate on interstates rather than the street in front of your house.
The Infrastructure Investment and Jobs Act, whose spending authority runs through September 30, 2026, added $350 billion in highway investment over five years and opened competitive grant programs that let cities, counties, metropolitan planning organizations, and tribal authorities apply for federal money directly instead of waiting for a state DOT to prioritize their project.4Federal Highway Administration. Infrastructure Investment and Jobs Act
Public Transit
Of the 18.4 cents per gallon, 2.86 cents goes into the Mass Transit Account.3Office of the Law Revision Counsel. 26 U.S.C. 9503 – Highway Trust Fund Spread across the roughly 140 billion gallons of fuel sold each year, that adds up to billions of dollars for buying new buses, extending subway lines, laying light rail track, and building commuter rail stations. Capital projects on that scale are hard for individual cities to finance alone, so federal transit funding acts as a floor for systems in metro areas across the country. Many states mirror the approach by routing part of their own fuel taxes to regional transit authorities for fleet modernization, accessible platforms, and fare system upgrades.
Underground Storage Tank Cleanup
The last sliver of the federal tax, 0.1 cent per gallon, feeds the Leaking Underground Storage Tank Trust Fund under 26 U.S.C. § 9508.5Office of the Law Revision Counsel. 26 U.S.C. 9508 – Leaking Underground Storage Tank Trust Fund Aging tanks at gas stations and industrial sites sometimes leak petroleum into soil and groundwater, and when the owner can’t pay for cleanup, this fund covers it. The EPA administers the money through cooperative agreements with state environmental agencies, which prioritize sites based on factors like distance to drinking water.6U.S. Environmental Protection Agency. Leaking Underground Storage Tank Trust Fund Corrective Action Cooperative Agreement Guidelines A fraction of a penny per gallon sounds trivial, but at 140 billion gallons a year it generates real cleanup capacity.
State Gas Taxes and Local Roads
State fuel tax revenue handles the road work drivers notice most: filling potholes, plowing snow, salting bridges, replacing guardrails, repainting lane markings, and keeping traffic signals running. County roads, surface streets, and the bridges connecting neighborhoods to commercial centers all depend on it. State agencies also send portions of that revenue down to local jurisdictions, so rural counties with thin tax bases still get some road money.
Some states set a flat cents-per-gallon rate, others charge a percentage of the wholesale price that moves with the market, and a few layer additional fees on top. That’s why the range from Alaska to California is so wide.1U.S. Energy Information Administration. Many States Slightly Increased Their Taxes and Fees on Gasoline Gas taxes don’t cover everything, either. About 70 percent of total U.S. road spending comes from user fees including gas taxes, tolls, and vehicle registration; the other 30 percent comes from general fund transfers and other sources.
When Gas Tax Money Doesn’t Fund Roads
The Highway Trust Fund is legally restricted to transportation uses at the federal level, but state gas tax revenue faces fewer constraints. More than 20 states divert at least some of their fuel tax collections to purposes unrelated to transportation, including state police, schools, and general government administration. A few states send over a quarter of their fuel tax revenue to education. Nine states redirect gas tax money specifically to law enforcement. If you want to know exactly how your state uses its share, the state department of transportation or legislative budget office publishes the breakdown.
Who Doesn’t Pay the Federal Gas Tax
Because the federal tax is designed as a road-user fee, fuel that never touches a public highway generally qualifies for an exemption or refund. The IRS recognizes several nontaxable uses:
- Fuel used on a farm for farming purposes qualifies for a full refund.
- Fuel burned in off-highway equipment like construction machinery or generators is exempt.
- Fuel used in buses transporting students or school employees is nontaxable.
- Fuel purchased for the exclusive use of a state, political subdivision, or the District of Columbia is exempt, and Indian tribal governments qualify when the fuel supports essential governmental functions.
Eligible users claim refunds by filing IRS Form 8849 (Schedule 1), which covers undyed diesel, kerosene, and gasoline used for these purposes.7Internal Revenue Service. Publication 510 – Excise Taxes
Why the Tax No Longer Covers the Bill
The federal rate was last raised in 1993, when Congress moved the gasoline tax from 14.1 cents to 18.4 cents. Because it’s a flat cents-per-gallon charge rather than a percentage of the price, inflation has quietly cut its purchasing power. The tax buys roughly 45 percent less road work today than it did three decades ago. On top of that, cars have gotten more fuel-efficient, so drivers cover the same miles while buying fewer gallons, and electric vehicles pay no federal gas tax at all.
The result is a structural shortfall. Congressional Budget Office projections put 2026 highway-related revenue at about $44 billion against more than $61 billion in spending, a gap of roughly $17 billion in a single year. Since 2008, Congress has transferred more than $275 billion from the general fund, which is fed by income taxes and borrowing, to keep the Highway Trust Fund solvent. That’s why the money paying for federal road and transit projects increasingly isn’t coming from the gas tax alone, even though the gas tax remains the fund’s designated revenue source. Congress will need to reauthorize the fund before its September 30, 2026 deadline, and how it closes that gap, whether through a rate increase, a mileage-based fee, EV surcharges, or continued general fund transfers, is the open question hanging over the next transportation bill.