What is a Fuel Tax Credit

The Fuel Tax Credit is a federal subsidy that allows businesses to reduce their taxable income on specific types of fuel costs.


Tax Deductions Vs. Tax Credits


Fuel Tax Credits apply to different types of fuel. The credit for taxes paid on fuels can vary greatly and is available on everything from the fuel fishermen use to run their boats to reimbursements for fuels used by a warehouse to run their forklifts. There are also credits available on the more common types of fuel such as gasoline when it is used in qualifying vehicles.

The credit is taken by using Federal Tax Form 4136. To determine if an individual or corporation qualifies for the Fuel Tax Credit they should check the Internal Revenue Service (IRS) website, or consult with a licensed tax professional.

The IRS lists the Fuel Tax Credit as one of the most common credits that are abused or misused when filing tax returns. As technology changes and adapts, the specific types of fuels that qualify, as well as their intended uses, will continue to change.

According to the IRS, Form 4136 can also be applied to the sale of fuel, with the Alternative Fuel Credit and as a credit for blending a diesel-water fuel emulsion.

The Fuel Tax Credit in the News

Since the Fuel Tax Credit will reimburse the fuel taxes dollar for dollar, some companies may see a benefit to adding certain fuels to existing processes to use the credit.  

Take for example the paper industry’s use of the Black Liquor Tax loophole. By adding a few drops of diesel fuel to the existing process, companies were able to take full advantage of the 50-cent-a-gallon fuel tax credit. According to a 2013 Washington Post article, this resulted in the paper industry claiming $2 billion dollars in refunds from the IRS. Congress never voted to close that loop hole, instead allowing it to expire at the end of 2009. Siting that the use of the Fuel Tax Credit was meant for innovative new fuels that would reduce the use and reliance on fossil fuels that were believed to be contributing to global warming.

The Fuel Tax Credit is one of the most often misused credits. It is listed on the IRS’s Dirty Dozen list of credits that are taken in error or used in attempt to defraud the government. While loopholes do exist and can legally be taken advantage of, like the paper industry use of the Black Liquor Tax loophole, intentionally misfiling is considered an act of fraud. It can open individuals and corporations up to prosecution that can range from fines to jail time.