Did you know that as a business owner, you could be eligible for a fuel tax credit? If you’re buying fuel for your vehicles and equipment that are used in certain business activities, those gallons could be considered "nontaxable use" by the Internal Revenue Service. For many business owners, a fuel tax credit is a welcome financial benefit. Just like other business expenses that can be used to reduce taxable income, fuel is a business expense that should be carefully reviewed for potential tax credits. We’ll explain which activities qualify, how to file and what information you’ll need to get started.
What is a fuel tax credit, and who qualifies?
Federal and state governments impose various taxes on unleaded and diesel fuels to maintain roads, interstate highways and other transportation infrastructure. The federal excise tax is 18.4 cents per gallon for unleaded and 24.4 cents per gallon for diesel. However, certain businesses will qualify for a credit on those taxes that have been paid at the time of fueling.
If you operate intercity, local or school buses, for example, you can qualify for a fuel tax credit. Vehicles and equipment used for farming purposes also qualify. In fact, most equipment that doesn’t involve powering a vehicle qualifies under "off-highway business use." This could include heavy equipment used for construction projects as well as reefer units attached to trucks and trailers. Below is a list of various activities that qualify according to the IRS:
| No. | Type of Use |
| 1 | On a farm for farming purposes |
| 2 | Off-highway business use (for business use other than in a highway vehicle registered or required to be registered for highway use) |
| 3 | Export |
| 4 | In a boat engaged in commercial fishing |
| 5 | In certain intercity and local buses |
| 6 | In a qualified local bus |
| 7 | In a bus transporting students and employees of schools (school buses) |
| 8 | For diesel fuel and kerosene (other than kerosene used in aviation) used other than as a fuel in the propulsion engine of a train or diesel-powered highway vehicle (but not off-highway business use) |
| 9 | In foreign trade |
| 10 | Certain helicopter and fixed-wing aircraft uses |
| 11 | Exclusive use by a qualified blood collector organization |
| 12 | In a highway vehicle owned by the United States that isn’t used on a highway |
| 13 | Exclusive use by a nonprofit educational organization |
| 14 | Exclusive use by a state, political subdivision of a state, or the District of Columbia |
| 15 | In an aircraft or vehicle owned by an aircraft museum |
| 16 | In military aircraft |
Source: Internal Revenue Service
How to file Form 4136
If you determine that your company qualifies for a tax credit, the next step is to file Form 4136 with the IRS. There are a few things that you’ll need to enter onto the form:
- Enter your name and taxpayer identification number.
- Find the section for the fuel type that you purchased.
- Find the nontaxable use that applies to your business.
- Enter the number of gallons that you purchased (that are nontaxable).
- Multiply those gallons by the tax rate (cents per gallon) to calculate the credit amount.
- Add up all entries if multiple products were claimed to get the total credit amount.
The IRS has instructions for how to enter all of this information onto their form. The total credit amount that you claim is then used when filing your income tax. It’s important that you know (and can show) how many gallons were purchased during the year. In fact, the IRS stipulates that you’ll need to have records of where and when fuel was purchased when claiming a credit.
This can be difficult and time-consuming to put together if you rely on paper receipts or credit card statements that don’t include gallons. Fortunately, there are easier ways to track how many unleaded and diesel gallons you purchased during the year. You can contact your fuel vendor for that information before starting your paperwork. A fuel card is a useful way to track an important business expense. You’ll be able to capture gallons, product, date, time and location whenever you make a purchase. This data is needed for federal and even state filings if you pursue refunds on gas taxes by state or diesel fuel taxes by state. Regardless of what you need to file, a report of your annual gallons should be available from your vendor instead of tracking on your own and risking clerical errors.
By knowing the tax credits available, which activities qualify and what form to complete, lowering your tax obligation becomes less daunting. Remember to do your research, and consult with a tax professional if necessary. Consider using tools like a fuel card to track gallons so that filing is as easy as possible.
