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An excise tax applies to specific goods and activities rather than income. The IRS collects fuel excise tax at points like removal from a refinery or terminal, entry into the United States, or sale within the bulk transfer/terminal system, not directly from the person filling up at the pump.

The tax usually lands on refiners, terminal position holders, importers (called enterers), blenders, or throughputters, depending on which taxable event occurs. A position holder holds the inventory position for fuel sitting in an approved terminal and is liable for the tax if that fuel is removed across the rack.

Retailers and end users aren’t usually the ones filing, but the tax gets built into the price they pay. This is reported quarterly on Form 720, the Quarterly Federal Excise Tax Return.

Gasoline, diesel fuel, kerosene, diesel-water fuel emulsion, and a group of “other fuels” (including alternative fuels like propane and compressed natural gas) all fall under fuel excise tax. Each has its own taxable events: removal from a terminal, removal from a refinery, entry into the U.S., or sale to an unregistered person, among others.

Dyed Fuel and Aviation Kerosene Exceptions

Dyed diesel and dyed kerosene work differently. Because they’re marked for nontaxable use such as farming, home heating, or off-highway equipment, they only carry a small Leaking Underground Storage Tank (LUST) tax instead of the full rate. Kerosene used in aviation has its own set of rates depending on whether it’s for commercial aviation, noncommercial aviation, or a nontaxable purpose.

Here are the current rates from the 2026 Form 720, with IRS numbers:

For a closer look at the gasoline-specific figures above, see our page on federal gasoline tax rates.

Note  - Part II of Form 720 lists a few other fuel-related numbers that work differently from the table above. 

• IRS No. 64 is the inland waterways fuel use tax, charged on fuel consumed by commercial vessels on designated inland and intracoastal waterways. 

• IRS No. 125 is the LUST tax tied to that same inland waterways use, applied when the fuel wasn’t already covered by LUST tax elsewhere.

• IRS No. 51 applies to second generation biofuel claimed under a producer credit but not used the way the credit required, essentially a recapture tax. 

• IRS No. 117 works the same way for biodiesel or renewable diesel sold as fuel but not used as fuel. These four numbers are tied to specific waterway use or credit-recapture situations, not standard removal-and-sale events.

Fuel excise tax is calculated based on the taxable fuel quantity multiplied by the applicable IRS tax rate. The calculation method depends on the type of fuel being removed, sold, or used.

Formula - Fuel Excise Tax = Taxable Gallons × IRS Tax Rate per Gallon

Example 1: Gasoline

A fuel terminal removes 10,000 gallons of gasoline across the rack. Gasoline is subject to IRS No. 62 tax at $0.184 per gallon (including the $0.001 per gallon LUST tax).

Calculation:

10,000 gallons × $0.184 = $1,840 fuel excise tax

Therefore, the taxpayer must report $1,840 of federal excise tax for the taxable gasoline removed.

Example 2: Diesel Fuel

A terminal sells 8,000 gallons of diesel fuel. Diesel fuel is subject to IRS No. 60 tax at $0.244 per gallon (including the $0.001 per gallon LUST tax).

Calculation:

8,000 gallons × $0.244 = $1,952 fuel excise tax

The total federal excise tax liability is $1,952.

Fuel excise tax is reported quarterly on Form 720. Staying on top of quarterly Form 720 filing deadlines matters because most filers also owe semimonthly deposits throughout the quarter, not just one payment when the return is filed.

Paper Filing

Paper filing means filling out an entire form and mailing a completed Form 720 to the IRS mailing address, with a check or money order if payment is due.

Electronic Filing

The alternative is submitting through electronic filing methods, using an IRS-authorized e-file portal instead of mailing a paper form. Choosing the Online Portal like QuickFile720 is the wiser choice.

Note - Current IRS guidance notes that paper filed Form 720 are taking longer to process, and is actively encouraging electronic filing for faster acknowledgment of receipt. Given that, online filing is generally the more convenient option for most fuel excise tax filers.

These three terms get mixed up often, but they aren’t the same thing. 

• An exemption means the fuel was never fully taxed to begin with. Dyed diesel used on a farm only carries the small LUST tax rather than the full rate.

• A credit reduces the tax owed on your return, claimed through the Schedule C section filled on Form 720 when you’re also reporting a liability that quarter. 

• A refund is money paid back to you, usually filed on Form 8849 when you’re not otherwise filing Form 720 or when your claim doesn’t meet the Schedule C requirements.

Common qualifying uses include off-highway business use, farming purposes, export, use in certain buses, and use by state or local governments. Registered ultimate vendors can also claim credits on fuel sold for these exempt purposes, provided they have the right certificate on file from the buyer.

A few errors come up repeatedly. Filers report gallons under the wrong IRS number, confusing IRS No. 60(a) for rack removals with 60(b) for other taxable events. Others apply the standard $.244 kerosene rate when a reduced aviation rate actually applied, or the other way around.

Missing the filing deadline is another frequent problem, along with claiming a credit on Schedule C when the fuel should have gone through Form 8849 instead, or forgetting the certificate that supports an exempt sale. Transposed gallon quantities and unpaid semimonthly deposits can also trigger penalties even when the return itself looks accurate.

For the full technical rules behind any category above, the Official IRS Instructions for Form 720 remain the definitive source.

Conclusion

Fuel excise tax comes down to matching the right fuel, the right taxable event, and the right IRS number to the correct rate on Form 720. Getting these details right and filing on time keeps your excise tax reporting accurate.

Ready to move your Form 720 filing online? Quick File 720 can help you file and pay with less back-and-forth than the paper process.

File your Fuel Excise Tax online using Quickfile720 today!