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Fuel Tax Credit | Eligibility, Form 4136 & How to Claim ?

Credit for Federal Tax Paid on Fuels (Fuel Tax Credit)


What is the Credit for Federal Tax Paid on Fuels (Fuel Tax Credit) ?


In United States, a programme called the Credit for Federal Tax Paid on Fuels (Fuel Tax Credit) enables some firms to dollar-for-dollar lower their taxable income based on certain categories of fuel costs. The Fuel Tax Credit promotes the manufacturing and consumption of fuel derived from renewable resources. Individual taxpayers typically are not eligible for this benefit since it is only applicable to certain applications, such as off-highway business use, agricultural and farming, boats, and buses.

Different fuels are subject to taxes levied by the federal government. The federal gas tax, which will be 18.4 cents per gallon as of 2021, is likely the one that taxpayers are most familiar with because it supports national road construction. However, some gasoline usage are exempt from taxes, and those that use fuel can claim a credit for the taxes they've already paid by filing Form 4136.

Construction companies shouldn't ignore the fuel tax credit if they want to lower their tax obligations or maximize their refunds. The federal fuel tax is levied on consumers of uncolored gasoline, uncolored diesel fuel, and uncolored kerosene. It is used to finance highway and road maintenance projects. (The tax is waived for dyed fuels, which are only permitted for off-road use.)

Taxable fuel is frequently used for nontaxable purposes by its buyers. Off-road vehicles and construction machinery including front loaders, bulldozers, cranes, power saws, air compressors, generators, and heaters, for instance, are frequently powered by gasoline, undyed diesel fuel, or undyed kerosene in the construction industry. The fuel tax credit is the only mechanism for a contractor to recover taxes spent on nontaxable fuel use.

How Does the Fuel Tax Credit Works ?


In some situations, the Fuel Tax Credit can be used to offset the tax that the American government levies on fuels like gasoline and diesel. The Internal Revenue Service (IRS) levies a tax on certain fuels at the time of purchase in order to pay for highway maintenance. Almost everyone pays it because it is impractical to distinguish between taxable and nontaxable gasoline use at the time of purchase. Not everyone, meanwhile, uses fuel for taxable purposes.

Some businesses might find it advantageous to include fuel from renewable resources in their current fuel formulae in order to take advantage of the credit because this tax will reimburse fuel taxes for every dollar paid in them. However, as technology and the auto industry continue to advance and develop, so will the specific fuels that are eligible for tax credits—as well as their intended applications.

Untaxed Fuel Usage :

Not all fuels are subject to federal taxes. The government may not impose taxes or lower taxes under a number of situations, including the following:
  • Gas used for business purposes in a car that isn't licenced for highway travel.
  • Exported gasoline.
  • Using kerosene and gasoline in commercial aviation.
  • Used in agricultural or for some bus services, uncolored diesel fuel (Undyed diesel is taxed; Diesel that has been dyed red is typically untaxed).

Key Facts of Fuel Tax Credit


  • By employing certain types of fuel costs, the Fuel Tax Credit enables businesses to lower their taxable revenue dollar for dollar.
  • Because it is only valid for off-highway business use and a narrow range of purposes, this credit is only available to certain people.
  • The Fuel Tax Credit promotes the use of fuel from renewable sources.
  • Companies involved in landscaping, agriculture, manufacturing, and construction, among others, might profit from the fuel tax credit.

Who Qualifies for the Fuel Tax Credit ?


With a few exceptions (dyed diesel), the government essentially taxes all fuels and then grants credits for nontaxable usage because it would be impracticable to establish up separate gas stations and fuel depots around the nation to sell different taxed and untaxed fuels. In general, a credit for untaxed usage of a fuel is only available to the final consumer. In other words, you typically cannot claim the gasoline tax credit if you weren't the one who burned the fuel.

A wide range of fuel types are included in the eligibility requirements for the fuel tax credit :
  • Fuel used by commercial fisherman to power their vessels.
  • The type of gasoline that forklifts in a warehouse use to move objects.
  • A school bus company may also be eligible.
  • Even if you use automobiles on a public road, you can be qualified if your organisation is non-profit.

How Much is the Fuel Tax Credit ?


Currently, there is a federal tax of $0.184 per gallon on gasoline and $0.244 per gallon on diesel and kerosene. The amount of gallons utilised for nontaxable purposes during the year multiplied by the relevant rate is all that is necessary to determine the fuel tax credit.

For example, A construction company is eligible for a $5,040 credit if it consumes 7,500 gallons of gasoline and 15,000 gallons of undyed diesel fuel to power off-road trucks and equipment (7,500 x $0.184) + (15,000 x $0.244).

Although this may not seem like a lot, over time it can add up. And keep in mind that a tax credit offsets your tax obligation dollar for dollar. That is significantly more beneficial than a deduction, which just lowers your taxable income. But keep in mind that gasoline tax credits are deductible from the taxable income of your firm. The reason for this is because you cannot claim a deduction and a credit for the same item because the whole cost of the fuel purchases was previously written off as a business expense.

How to Calculate the Fuel Tax Credit ?


Your tax liabilities are directly decreased by the tax credits calculated on Form 4136. For instance, if you have credits totaling $243, your tax obligation is reduced by the full amount of $243. Tax deductions only lower the amount of your income that is liable to tax; tax credits have more impact. For instance, if you were in the 25% tax rate and received a $243 deduction, your tax would only be reduced by about $60.

The IRS and the Fuel Tax Credit


A Commonly Misused Claim :
The IRS has discovered that many filers artificially exaggerate the dollar amount of their claimed refunds by falsely claiming the Fuel Tax Credit, even though it is not available to the majority of taxpayers. A person or business may submit an incorrect Fuel Tax Credit claim on an otherwise valid tax return, or identity thieves may submit false claims, frequently as a component of a larger fraudulent operation.

The "Dirty Dozen" of the IRS :
The IRS annually compiles a list of the "worst of the worst" tax scams known as the "Dirty Dozen." One of the tax benefits that is most frequently misapplied or abused, according to The Dirty Dozen, is the fuel tax credit. It is either taken unintentionally or with the intent to defraud the government. Fuel Tax Credit fraud is regarded by the IRS as a "frivolous tax claim," which carries a $5,000 maximum fine and possible jail time.

List of Nontaxable Uses of Fuel


The government imposes taxes on a variety of fuels, including gasoline, diesel, kerosene, and alternative fuels. However, some of these fuels' applications are thought to be exempt from taxes. You can claim a credit on your tax return for the tax you paid if you are an individual or business who buys fuel for one of these purposes. The following are fuel usage that are not taxed.

1) Farm :
Farm fuel used for farming purposes.

2) Vehicles specifically intended for off-highway mobility :
If a vehicle is specially designed with a primary purpose other than carrying a specific kind of load over a public highway and as a result of this special design, the vehicle's ability to carry a load over a public highway is significantly constrained, then the vehicle is not treated as a highway vehicle.

3) Export :
Fuel that was shipped from the United States with the goal of keeping it in a foreign nation or American possession. If fuel is in a vehicle or aircraft's fuel supply tank, it cannot be exported.

4) Working as a commercial fisherman on a boat :
Fuel used to take, collect, prepare, or transport fish, shellfish, or other aquatic life for a given trip's commercial goals, like selling or processing the catch. They comprise both freshwater and saltwater fishing boats. They exclude vessels employed concurrently for both commercial and sport fishing.

5) In a few local and intercity buses :
Fuel used by a bus that provides public land transportation for passengers in exchange for payment. One of the following activities needs to be taking place on the bus :
  • Arranged transportation on established routes.
  • Non-scheduled operations if the bus has a minimum of 20 adult seats available, excluding the driver. Vans and other comparable vehicles utilised for taxi service or vanpooling are not acceptable.

6) With a licenced local bus :
Fuel used in a bus that satisfies all the criteria:
  • Is involved in providing intracity passenger land transportation to the general public for a fee.
  • Operates along set, established itineraries
  • Provides enough room for at least 20 adults to sit (excluding the driver)
  • Has a contract with a state or local government to provide the transportation, or receives more than a little subsidy from one of those governments.

7) Inside a school bus :
Fuel used by a bus carrying students or staff members of educational institutions. A school is an institution of higher learning with a regular faculty, a set curriculum, and a regular student population that attends the location where educational activities take place.

8) Kerosene and diesel fuel used for purposes other than as fuel :
Undyed diesel fuel and undyed kerosene are utilised in the propulsion engine of a diesel-powered highway vehicle or diesel-powered railway (excluding off-highway business use):
  • For cooking, lighting, and home heating;
  • In vessels;
  • In stationary machinery like compressors and generators;
  • For the purpose of cleansing
  • In snowmobiles and minibikes

9) International trade :
Fuel for commercial aeroplanes used for international travel or for trade between the United States and any of its territories. The phrase "trade" refers to the movement of people or things done for pay, as well as the preparations required for such movement. A foreign government must permit reciprocal benefits for aircraft registered in the US in the event of foreign-registered aircraft.

10) A few applications for fixed-wing and helicopter aircraft :
Certain Helicopter Consumes refers to fuel that a helicopter uses for any of the following activities:
  • Transporting people, supplies, or equipment when looking for, developing, or removing hard minerals, oil, or gas.
  • Planting, growing, harvesting, moving, or taking care of trees (including logging operations).
  • Transporting patients in need of medical attention.
  • Any of the following uses for fuel by a fixed-wing aircraft are referred to as "fixed wing aircraft uses"
  • Planting, growing, harvesting, moving, or taking care of trees (including logging operations).
  • Transporting patients in need of medical attention. Acute care emergency medical services must be available and exclusively provided on that flight by the aircraft.

11) Use only by a licenced blood donation organisation :
Fuel used solely for the purposes of collecting, storing, or transporting blood by the accredited blood collector organisation.

12) In a U.S.-owned highway car that isn't being driven on a highway :
Fuel used in a car that wasn't driven on a public highway during the claim period. Whether or whether the vehicle is registered or needs to be registered for highway use, this use is applicable.

13) Use only for nonprofit educational purposes :
Fuel used by a section 501(a)-exempt organisation that satisfies both of the standards below.
  • An established staff and programme.
  • A group of pupils who consistently attend the location where education is typically provided.

14) Exclusive use by a state, a state political entity, or the District of Columbia :
Fuel acquired for the sole purpose of usage by the state or municipal government.

15) In military planes :
Fuel used in an aeroplane that is part of an armed forces of the United States or another country.

16) In a vehicle or aircraft owned by an aviation museum :
Fuel used in a plane or car that belongs to a company that complies with all the aforementioned conditions.
  • As a section 501(c)(3) organisation, it is free from income tax (3).
  • According to a state (or District of Columbia) charter, it is run as a museum.
  • It is run solely for the purpose of purchasing, maintaining, and caring for World War II combat or transport aircraft.

How to Claim the Fuel Tax Credit ?


You can claim the Fuel Tax Credit by filing Form 4136 (Credit for Federal Tax Paid on Fuels) with your tax return. 

You can file Form 8849 (Claim for Refund of Excise Taxes) to request periodic refunds if you don't want to wait until the end of the year to recover gasoline taxes. Alternately, you can offset your excise tax due by claiming gasoline tax credits if your construction business submits Form 720 (Quarterly Federal Excise Tax Return).

How to Use Form 4136 ?


Numerous purposes are listed on the form for which gasoline taxes don't apply or are significantly reduced. You need to enter the quantity of gallons used for each one, multiply by the per-gallon rate, and then fill out the form.

Let's take an example where you utilized 1,000 gallons of undyed diesel for farming reasons. A credit of $243 would result from entering 1,000 in the space designated for that purpose and multiplying it by the credit rate of 24.3 cents per gallon. You total up all the credits on the form's final line.

To make these claims, use Form 4136 :
  • The alternative fuel credit. 
  • A credit for specific nontaxable fuel uses (or sales) made throughout your tax year.
  • Aa credit for combining an emulsion of diesel and water.

Contact 


U.S. Internal Revenue Service (IRS)
  • Phone : (202) 317-6855
  • Website : http://www.irs.gov/

FAQ's


If you don't have to, why pay ?
Nobody likes to pay taxes they don't have to, but that's precisely what you're doing if you don't take advantage of fuel tax credits. There is simply no excuse not to do so given the minimum effort required to claim these credits, which is basically just a matter of documenting your nontaxable gasoline uses and filling a form.

Does Business Qualify for Credit for Federal Tax Paid on Fuels ?
To find out if you qualify, check the IRS website or speak with a certified tax advisor. Companies and some individuals may apply for the Fuel Tax Credit using Federal Tax Form 4136 after determining that they are eligible for it. The alternative fuel credit may also be claimed by filers using this form.

Which companies can benefit from Fuel Tax Credit ?
Landscaping, farming, manufacturing, and construction industry owners buy fuel to power the machinery required to run their operations, but they frequently forget about this credit. For instance, the proprietor of a landscaping company utilising gasoline in its lawnmowers will be able to claim the credit since it falls within the "off-highway use" classification.

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