The gas tax is a federal and state excise charged on each gallon of motor fuel sold, with the money dedicated almost entirely to roads, bridges, and public transit. The federal rate on gasoline is 18.4 cents per gallon and has been since 1993. State taxes add roughly 33 cents per gallon on average, though the actual figure varies enormously depending on where you fill up.
What the Federal Rate Actually Includes
The federal fuel tax is imposed under 26 U.S.C. § 4081. Regular gasoline carries a base rate of 18.3 cents per gallon, and diesel and kerosene carry 24.3 cents. A separate 0.1-cent-per-gallon surcharge funds the Leaking Underground Storage Tank Trust Fund, which is why the numbers you usually see quoted are 18.4 cents for gasoline and 24.4 cents for diesel.1Office of the Law Revision Counsel. 26 USC 4081 – Imposition of Tax Aviation gasoline is taxed slightly higher at a 19.3-cent base plus the same surcharge.
These are fixed dollar amounts, not percentages. Whether crude oil trades at $40 or $120 a barrel, the federal tax per gallon does not move. Congress last raised the gasoline rate in 1993, taking it from 14.1 cents to 18.4 cents. Adjusted for inflation, that rate has lost nearly half its purchasing power in the years since.
Alternative highway fuels are taxed under 26 U.S.C. § 4041 at rates meant to mirror the conventional fuel they replace. Compressed natural gas is taxed at 18.3 cents per gasoline gallon equivalent (5.66 pounds of CNG), and liquefied natural gas at 24.3 cents per diesel gallon equivalent (6.06 pounds of LNG).2Office of the Law Revision Counsel. 26 USC 4041 – Imposition of Tax The underground storage tank surcharge applies to these fuels too.
State Taxes on Top of the Federal Rate
Every state adds its own fuel taxes, and the spread is wide. State taxes and fees on gasoline average about 33 cents per gallon nationally, but individual states range from roughly 9 cents to over 60 cents. Diesel varies even more, from about 9 cents to nearly 97 cents per gallon in the highest-tax states.
The way states set the rate also varies. Some use a flat per-gallon amount that stays put until the legislature changes it. About 22 states and the District of Columbia tie at least a portion of the rate to a variable mechanism such as the wholesale price of fuel, an inflation index, or a formula that factors in things like population growth or construction costs.3National Conference of State Legislatures. Variable Rate Gas Taxes Most states also tack on smaller environmental and inspection fees that fund things like storage-tank cleanup, and some local governments add their own surcharges for transit or road projects. Two drivers filling up 50 miles apart can pay noticeably different total taxes.
Who Pays the Tax and When
Fuel taxes are collected upstream, not at the pump. The point of collection is the terminal rack: the loading facility where fuel moves from bulk storage into tanker trucks bound for retailers.4eCFR. 26 CFR 48.4081-2 – Taxable Fuel; Tax on Removal at a Terminal Rack Refineries that load fuel into trucks at their own racks must register with the IRS and report every disbursement.5Internal Revenue Service. Refineries With Terminal Racks
Because a relatively small number of terminal operators and refiners handle the actual payments, enforcement is simpler than trying to collect at hundreds of thousands of gas stations. The cost then flows down the supply chain. By the time you pump gas, the tax is already baked into the price on the display, which is why your receipt usually doesn’t break it out the way a restaurant tab shows sales tax.
Where the Money Goes
Almost all federal fuel tax revenue is deposited into the Highway Trust Fund, a dedicated account established in 1956 for surface transportation. Under 26 U.S.C. § 9503, the fund also receives revenue from taxes on heavy truck sales, tires, and heavy vehicle use.6Office of the Law Revision Counsel. 26 USC 9503 – Highway Trust Fund
The fund is split into two accounts. The Highway Account, which gets the larger share, pays for road construction, bridge repairs, and related surface projects. The Mass Transit Account funds capital expenditures on buses, subways, light rail, and ferries.7Bureau of Transportation Statistics. Transportation Economic Trends: Government Transportation Revenue – Trust Funds The statute restricts what the money can be spent on, limiting appropriations to purposes authorized under transportation law. The current spending authorization runs through fiscal year 2026 under the Infrastructure Investment and Jobs Act of 2021.
Why the Gas Tax Isn’t Keeping Up
The Highway Trust Fund has been running a structural deficit for years. The federal rate hasn’t moved since 1993, but construction costs, fuel efficiency, and electric vehicle adoption have all climbed. Since 2008, Congress has authorized over $275 billion in general fund transfers to keep the trust fund solvent, including $118 billion under the 2021 infrastructure law.8Congressional Research Service. Transfers to the Highway Trust Fund
The Congressional Budget Office projects that the Highway Account balance could approach zero in fiscal year 2028, at which point the Department of Transportation may have to slow reimbursements to state and local governments for federally funded highway work. By fiscal year 2029, the annual gap between revenue and spending could reach roughly $40 billion.
States are responding in two main ways. At least 41 now charge a special annual registration fee on electric vehicles to make up for the gas tax those drivers never pay, with fees running from $50 to $290 depending on the state.9National Conference of State Legislatures. Special Fees on Plug-In Hybrid and Electric Vehicles Many states charge a smaller fee for plug-in hybrids as well.
The longer-term idea being tested is a road usage charge, which bills drivers by miles driven instead of gallons bought. The Bipartisan Infrastructure Law funded a national pilot at $10 million per year through fiscal 2026 and put $15 million annually into state grants for their own tests. Several states have already run voluntary pilots working through the mechanics of mileage tracking, driver privacy, and collection. Whether any of this eventually replaces the per-gallon model nationwide is unsettled.
Refunds for Off-Road and Exempt Use
Not every gallon is burned on a public road, and the tax code refunds the excise on fuel used in nontaxable ways. Farmers running undyed diesel in field equipment, government fleets, businesses using off-road machinery, and commercial aviation operators can all claim a credit for the federal excise tax they paid on qualifying fuel.10Internal Revenue Service. About Form 4136, Credit for Federal Tax Paid on Fuels
The credit is claimed on IRS Form 4136 by multiplying qualifying gallons by the per-gallon rate. Undyed diesel used for farming, for example, qualifies for a 24.3-cent-per-gallon credit. The credit is taken on your annual income tax return. If quarterly claims exceed $750, you can file Form 8849 during the year for a faster refund instead of waiting until tax time. One trap catches people: if you already deducted the full cost of the fuel, including the tax portion, as a business expense, you have to include the refund in gross income. You can’t deduct the tax and pocket the refund tax-free.
Dyed Diesel and Tax Evasion Penalties
Diesel sold for off-road use is dyed red to mark it as tax-exempt. Farmers, construction outfits, and other off-road users buy it at a lower price because the highway excise hasn’t been paid. Using dyed diesel in a vehicle driven on public roads is illegal and carries steep federal penalties.
Under 26 U.S.C. § 6715, the penalty for each violation is the greater of $1,000 or $10 per gallon of dyed fuel involved.11Office of the Law Revision Counsel. 26 USC 6715 – Dyed Fuel Sold for Use or Used in Taxable Use Repeat offenses escalate the base amount: $2,000 for a second, $3,000 for a third, and so on. Enforcement runs through roadside inspections where officials sample fuel tanks, and the dye remains detectable even after a tank has been topped off with clear diesel.
Willfully evading federal fuel taxes altogether is a felony under 26 U.S.C. § 7201, carrying fines up to $100,000 for individuals and $500,000 for corporations, plus up to five years in prison.12Office of the Law Revision Counsel. 26 USC 7201 – Attempt to Evade or Defeat Tax