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Credit For Federal Tax Paid on Fuels

The summer heat is not the only thing on the rise this year. National average diesel fuel prices were $5.57 per gallon as of July 11, 2022, according to the U.S. Energy Information Administration (EIA). Which is up $2.28 compared to an annual average of $3.29 in 2021.

In order to combat rising fuel prices, companies should start to implement some of the following changes.

  • Limit the time equipment is idling and unproductive
  • Transport multiple pieces of equipment at a time to the job site to cut down on transportation costs.
  • Pull idle equipment from a jobsite nearby vs. sending out more equipment from the yard.
  • Companies should make sure they are using off-road diesel (Dyed Red) for equipment. The IRS defines off-road equipment as “Off-highway business use (for business use other than in a highway vehicle registered or required to be registered for highway use)”.
  • Larger companies who have the room for off-road diesel tanks may want to consider working with an off-road diesel supplier. There are several suppliers in South Central Pennsylvania.
  • For companies unable to obtain off-road diesel directly from a supplier, relief can be found in the form of tax credits. This is where IRS Form 4136 Credit for Federal Tax Paid on Fuels comes into play.

Credit for Federal Tax Paid on Fuels

Tax credits calculated on IRS Form 4136 directly reduce your tax obligations. For example, if you have $5,000 worth of fuel credits you would lessen your tax obligation by the full $5,000.

According to the IRS you should use Form 4136 for the following:

  • The biodiesel or renewable diesel mixture credit.
  • The alternative fuel credit.
  • A credit for certain nontaxable uses (or sales) of fuel during your income tax year.
  • A credit for blending a diesel-water fuel emulsion.
  • A credit for exporting dyed fuels or gasoline blendstocks.

For most companies the following item will be most relevant, “A credit for certain nontaxable uses of fuel during your income tax year.” Eligibility for this credit involves recording the gallons of gas and fuel used for off-road purposes. For example, if you put 10 gallons of road diesel in your skid steer you can claim tax credits on those 10 gallons since you paid road tax on diesel that was used for off-road use. Other items that can be claimed include:

  • Gas for use in equipment, generators, saws, etc. can call be claimed on Line 1a.
  • Diesel for use in off-road equipment can be claimed on Line 3a.

IRS Form 4136 needs to be completed on an annual basis. Given this, you should track your off-road gas and fuel usage. You should also save your receipts and/or fuel invoices to substantiate the total gallons recorded on the form. Every business’ tax situation is different. McKonly and Asbury has a team of experts that are able to help your business navigate these tax credit opportunities. Visit our website for more information on McKonly & Asbury’s Construction Services and Tax Services.


About the Author

Zachery Starner

Zach joined McKonly & Asbury in 2013 and is currently a Manager in the firm’s Audit & Assurance Segment. Zach services clients in several industries, including manufacturing, construction, and healthcare with compilation and… Read more

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