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Emil @ CPA Forensic wrote: Your construction company may be able to claim the fuel tax credit

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The federal fuel tax credit recently made the news when it was referenced on the IRS’s most recent “Dirty Dozen” list of tax scams. However, the false fuel-tax-credit scam involves dishonest third parties telling individuals that they may qualify for the credit when, in fact, only certain businesses are eligible to claim it. One of those businesses might be your construction company.

What’s the deal?

The federal fuel tax is used to fund highway and road maintenance programs. It’s collected from buyers of gasoline, undyed diesel fuel and undyed kerosene. (Dyed fuels, which are limited to off-road use, are exempt from the tax.)

Purchasers of taxable fuel often use it for nontaxable purposes. For example, construction businesses often use gasoline, undyed diesel fuel or undyed kerosene to run off-road vehicles and construction equipment, such as front loaders, bulldozers, cranes, power saws, air compressors, generators and heaters. The only way for a contractor to recoup taxes paid on nontaxable fuel use is to claim the fuel tax credit.

How much can you save?

Currently, the federal tax on gasoline is $0.184 per gallon and the federal tax on diesel fuel and kerosene is $0.244 per gallon. Calculating the fuel tax credit is simply a matter of multiplying the number of gallons used for nontaxable purposes during the year times the applicable rate.

So, for instance, a construction company that uses 7,500 gallons of gasoline and 15,000 gallons of undyed diesel fuel to operate off-road vehicles and equipment is entitled to a $5,040 credit (7,500 x $0.184) + (15,000 x $0.244).

This may not seem like a large number, but it can add up over the years. And remember, a tax credit reduces your tax liability dollar for dollar. That’s much more valuable than a deduction, which reduces only your taxable income.

Keep in mind, though, that fuel tax credits are usually includable in your company’s taxable income. This is because you likely deducted the full amount of the fuel purchases as business expenses, and you can’t claim a deduction and a credit on the same expense.

How do you claim it?

You can claim the credit by filing Form 4136, “Credit for Federal Tax Paid on Fuels,” with your tax return. If you don’t want to wait until the end of the year to recoup fuel taxes, you can file Form 8849, “Claim for Refund of Excise Taxes,” to obtain periodic refunds.

Alternatively, if your construction business files Form 720, “Quarterly Federal Excise Tax Return,” you can claim fuel tax credits against your excise tax liability.

Who can help?

Given the minimal burden involved in claiming the fuel tax credit — it’s just a matter of tracking nontaxable fuel uses and filing a form — there’s really no reason not to explore whether your construction company might qualify. Our firm can help you determine whether you’re eligible and, if so, assist you in completing and filing the proper tax form.

© 2023


The federal fuel tax credit recently made the news when it was referenced on the IRS’s most recent “Dirty Dozen” list of tax scams. However, the false fuel-tax-credit scam involves dishonest third parties telling individuals that they may qualify for the credit when, in fact, only certain businesses are eligible to claim it. One of those businesses might be your construction company.

What’s the deal?

The federal fuel tax is used to fund highway and road maintenance programs. It’s collected from buyers of gasoline, undyed diesel fuel and undyed kerosene. (Dyed fuels, which are limited to off-road use, are exempt from the tax.)

Purchasers of taxable fuel often use it for nontaxable purposes. For example, construction businesses often use gasoline, undyed diesel fuel or undyed kerosene to run off-road vehicles and construction equipment, such as front loaders, bulldozers, cranes, power saws, air compressors, generators and heaters. The only way for a contractor to recoup taxes paid on nontaxable fuel use is to claim the fuel tax credit.

How much can you save?

Currently, the federal tax on gasoline is $0.184 per gallon and the federal tax on diesel fuel and kerosene is $0.244 per gallon. Calculating the fuel tax credit is simply a matter of multiplying the number of gallons used for nontaxable purposes during the year times the applicable rate.

So, for instance, a construction company that uses 7,500 gallons of gasoline and 15,000 gallons of undyed diesel fuel to operate off-road vehicles and equipment is entitled to a $5,040 credit (7,500 x $0.184) + (15,000 x $0.244).

This may not seem like a large number, but it can add up over the years. And remember, a tax credit reduces your tax liability dollar for dollar. That’s much more valuable than a deduction, which reduces only your taxable income.

Keep in mind, though, that fuel tax credits are usually includable in your company’s taxable income. This is because you likely deducted the full amount of the fuel purchases as business expenses, and you can’t claim a deduction and a credit on the same expense.

How do you claim it?

You can claim the credit by filing Form 4136, “Credit for Federal Tax Paid on Fuels,” with your tax return. If you don’t want to wait until the end of the year to recoup fuel taxes, you can file Form 8849, “Claim for Refund of Excise Taxes,” to obtain periodic refunds.

Alternatively, if your construction business files Form 720, “Quarterly Federal Excise Tax Return,” you can claim fuel tax credits against your excise tax liability.

Who can help?

Given the minimal burden involved in claiming the fuel tax credit — it’s just a matter of tracking nontaxable fuel uses and filing a form — there’s really no reason not to explore whether your construction company might qualify. Our firm can help you determine whether you’re eligible and, if so, assist you in completing and filing the proper tax form.

© 2023

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California Forensic CPA