Fuel Tax Credit: Who Can Claim It for Off-Highway Business Use?

Every gallon of gasoline and undyed diesel sold in the United States carries a federal excise tax in its price. The tax funds highways, so when a business burns the fuel somewhere other than a highway vehicle, in a tractor, a mower, a generator or an excavator, the law lets it take the tax back. That is the fuel tax credit: section 34 makes the amounts payable under sections 6420, 6421 and 6427 a credit against income tax, claimed on Form 4136, and larger claims can be refunded during the year on Form 8849. This guide covers who qualifies, the definitions of farming and off-highway business use, the per-gallon rates, the two forms, and the records, from section 34, section 6427, Form 4136 (2025) and its instructions, Schedule 1 (Form 8849) and Publication 510 (Rev. December 2025).

Who can claim the fuel tax credit

The claimant is the ultimate purchaser: the business that bought the fuel and used it in a nontaxable use. Form 4136 lists those uses in a type of use table. The two that matter to most small businesses are type 1, use on a farm for farming purposes, and type 2, off-highway business use, defined as business use other than in a highway vehicle registered or required to be registered for highway use. Other types cover commercial fishing boats, certain intercity, local and school buses, exports, and diesel or kerosene used other than in the propulsion engine of a train or diesel-powered highway vehicle. A partnership cannot file Form 4136; it reports each partner's share of the gallons, the rate and the type of use on Schedule K-1 and the partners claim it.

Three things never qualify, per the instructions: fuel in vehicles used for personal purposes or commuting, nonbusiness off-highway use such as snowmobiles, minibikes and a home lawn mower, and any vehicle registered or required to be registered to drive on public highways. A company's registered pickups and vans earn nothing, however much of their mileage is business.

Off-highway business use, defined

Publication 510 defines off-highway business use as fuel used in a trade or business, or in an income-producing activity, other than as fuel in a highway vehicle registered or required to be registered. Use in a boat is never off-highway business use. The publication lists what does count: stationary machines such as generators, compressors and power saws; fuel used for cleaning; and forklifts, bulldozers and earthmovers. Its example is a landscaping business whose gasoline in power mowers and chain saws qualifies, while the owner's personal mower at home does not.

A highway vehicle is any self-propelled vehicle designed to carry a load over public highways, whether or not it also does other things, so a registered dump truck that spends its life on a quarry site is still a highway vehicle. Specially designed mobile machinery escapes that definition only when all of Publication 510's tests are met: a chassis with permanently mounted equipment for construction, drilling, mining, farming or similar operations, specially designed to serve only as a mount and power source for that equipment, and unable without substantial modification to carry any other load. Fuel used in mobile machinery of that kind is claimed on the annual Form 4136, not on the quarterly Form 8849, per the publication's type of use table note.

Farming purposes, defined

Fuel is used on a farm for farming purposes when an owner, tenant or operator uses it in the trade or business of farming, on a farm in the United States, for the purposes Publication 510 lists: cultivating the soil or raising or harvesting any agricultural or horticultural commodity; raising, feeding, caring for or managing livestock, bees, poultry or fur-bearing animals; operating, maintaining and improving the farm and its equipment; handling, drying, packing or storing a raw commodity when the farm produced more than half of the commodity so treated; and tree work incidental to the farming operation. A farm includes ranches, nurseries, orchards, greenhouses and feed yards. When a custom operator does the cultivating or harvesting, the farmer is treated as the ultimate purchaser for that fuel, and an applicator of fertilizer or pesticide, including an aerial applicator, is generally treated as having used its own fuel for farming.

Fuel used off the farm is not farm use even when it hauls the farm's crops down the highway, and neither is fuel used for processing, packaging or canning.

The rates on Form 4136 (2025)

Dyed diesel and dyed kerosene are sold for nontaxable uses without the excise tax, so no credit exists for them; line 3 of Form 4136 requires the filer to certify that the diesel claimed showed no visible evidence of dye. Aviation gasoline, kerosene used in aviation and alternative fuels have their own lines and rates on the form.

Illustration: a landscaping and excavation company

The company enters $1,339.50 on Form 4136, line 17, and carries it to Form 1120-S, line 24c. Had the fuel bought in the April to June quarter alone been 1,500 gallons of gasoline and 2,000 gallons of diesel, the $760.50 for that quarter would have passed the $750 threshold, and the company could have filed Schedule 1 (Form 8849) between July 1 and September 30 for a refund instead of waiting for the return. Because the company deducted the full pump price of the fuel as an expense, the $1,339.50 is included in its income.

Annual credit on Form 4136 or quarterly refund on Form 8849

Form 4136 is filed with the income tax return and claims fuel used during the income tax year. Its line 17 total goes to Schedule 3 (Form 1040), line 12; Form 1120, Schedule J, line 20b; Form 1120-S, line 24c; or Form 1041, Schedule G, line 17. Section 34 sits in subpart C of the Code, the refundable credits, not among the general business credits, so the section 38 limit and the section 39 carryover rules do not apply to it. The 2025 form added Part I, Information About Your Business, which every claimant must complete, and a column (d) in Part II for the actual fuel cost from the claimant's records.

Schedule 1 (Form 8849) offers a refund during the year under section 6427(i)(2). Three conditions apply: the claim must be at least $750, met either by one quarter or by aggregating quarters of the income tax year for which no other claim was made; it must be filed during the first quarter after the last quarter in the claim (a July through December claim is filed between January 1 and March 31); and only one claim may be filed for a quarter. Anything refunded on Form 8849, or credited on Form 720, Schedule C, cannot be claimed again on Form 4136. Publication 510 marks gasoline used on a farm as "credit only," so farm gasoline goes on Form 4136 whatever the amount.

Records, and the income tax side

The instructions require records supporting every credit for at least 3 years from the date the return is due or filed, whichever is later. In practice that means fuel invoices, a log tying purchases to equipment and activity, gallons by fuel type and type of use, and the actual cost now reported in column (d). Where the same fuel goes into both registered trucks and off-highway equipment, the split needs a basis, such as separate tanks, fuel cards or equipment meters. The fuel itself stays deductible as an operating expense, one of the items in the small business tax deductions guide; the credit simply gives back the tax portion, which is why it becomes income when the full cost was deducted. The other credits a small company can claim alongside it are listed in the federal tax credits for small businesses guide.

Sources: 26 U.S.C. 34; 26 U.S.C. 6427; IRS, Form 4136 (2025); IRS, Instructions for Form 4136 (2025); IRS, Schedule 1 (Form 8849) (Rev. May 2020); IRS, Publication 510 (Rev. December 2025). Rules and figures checked against these sources on September 26, 2026. This is general information, not tax advice for your situation. Tax services are provided by licensed tax professionals under a separate engagement agreement. BEG does not provide tax advice.