The federal fuel tax credit allows companies to reduce their taxable income dollar for dollar based on specific types of fuel costs. However, it is not available to all individuals. It is primarily meant for off-highway business use and only covers certain kinds of fuel. It can only be claimed on a tax return and requires proper documentation. In addition to federal taxes, many states offer their own fuel tax credits to encourage businesses to invest in alternative-fuel machinery and vehicles. It’s important to consult with a knowledgeable tax and financial professional before claiming any fuel-related tax credits.
Eligible entities include individuals, corporations, C-corporations, S-corporations, and pass-through entities such as partnerships, S-partnerships, and LLCs. It also includes state and local governments. It may also be claimed by certain nontaxable entities that dispense alternative fuel for their own on-site use, such as public transit systems or the operators of intercity, local, and school buses.
How to Claim the Fuel Tax Credit?
To claim a fuel tax credit, you’ll need to fill out Form 4136, Credit for Federal Tax Paid on Fuels, with your return each year. You can also file quarterly claims for refunds on fuel taxes with Form 720, Quarterly Federal Excise Tax Return. The more precise you can be when listing the gallons purchased and the fuel tax rate that applies, the more accurately your claim will be calculated. You’ll also need to have a record of your fuel purchases and the types of equipment they’re used in. A good way to do this is to separate your fuel or fleet cards by purpose and use, so you can keep track of what is taxable and what isn’t.
The fuel tax credit amount is calculated by multiplying the number of gallons purchased for nontaxable uses during the year by the applicable rate. The current rate for gasoline is $0.184 per gallon, while diesel fuel and kerosene rates are $0.244 per gallon.
The IRS has uncovered significant fraud related to the fuel tax credit in recent years, and it is watching for fraudulent claims this filing season. Generally, fraudulent fuel tax credits are filed by dishonest third parties who falsely tell individuals they qualify for the credit. In other cases, identity thieves file bogus claims to inflate the dollar amount of their refunds.