Blog Details

Introduction
Federal excise taxes apply to many types of fuel, including diesel, gasoline, kerosene, and alternative fuels, under U.S. tax law. However, if that fuel is used for certain exempt purposes, such as off-road business uses, farming, or other non-road uses, the excise tax paid may qualify for a credit or refund. Many taxpayers, including small businesses, farms, and non-road equipment users, often overlook this opportunity.

Fuel tax credits and refunds apply when fuel is used for nontaxable uses, such as:

1)Off-road business equipment (e.g., generators, heavy machinery).

2)Farming equipment and other agricultural uses.

3)Exported fuel or fuel used by tax-exempt organizations, government entities, and schools.

If fuel was subject to excise tax but was subsequently used for an exempt purpose, you may be eligible to reclaim part or all of that tax.

• 1)For eligible fuel use each quarter, you can file Form 720. On Schedule C of Form 720, you report the nontaxable use and claim a credit against excise tax liability.
• 2)This method is useful for businesses that regularly use exempt fuel and wish to offset ongoing excise tax liabilities. If the credit exceeds taxes due, or if no liability exists, other forms (see below) may be more appropriate.

Alternative Claim Options
If you do not file quarterly excise returns (Form 720), or if your credit exceeds your liabilities, you have other options:

• Form 4136 — “Credit for Federal Tax Paid on Fuels”: used when filing your annual income tax return to claim credit for nontaxable fuel use during the year.
• Form 8849 — “Claim for Refund of Excise Taxes”: used to claim a refund (rather than just a credit) for fuel tax paid on certain exempt uses. Attach the appropriate schedule (e.g., Schedule 1 for nontaxable use) depending on the nature of your claim.

• 1)Lack of awareness: Many assume excise tax on fuel is “just the cost of fuel,” without realizing that certain uses are exempt.
• 2)Record-keeping burden: To file a valid claim, you must maintain documentation of amount of fuel used, type of use, seller information, dates of purchase, gallons used, etc.
• 3)Complexity: The correct form and schedule depend on the type of fuel, type of use, and whether you’re offsetting liability or seeking a refund.

Conclusion
If your business, farm, or organization uses fuel for off-road, farming, export, or other exempt purposes, you may be entitled to significant savings. Don’t treat fuel excise tax as an inevitable cost. Instead evaluate whether you qualify for credit or refund using Form 720 (quarterly), Form 4136 (annual), or Form 8849 (refund). With proper documentation and timely filing, you could reclaim taxes already paid.