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For additional details, procedures, and implications related to claiming available fuel excise and income tax credits under IRC §§ 6426, 6427, and 34, see the sections below.

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Credits Against Fuel Excise Taxes:

IRC § 6426, as extended through December 31, 2024, provides excise tax credits against taxes imposed under IRC §§ 4041 and 4081 for qualified fuel activities involving biodiesel mixtures (§ 6426(c)), alternative fuels (§ 6426(d)), and alternative fuel mixtures (§ 6426(e)). Note: The alcohol fuel mixture credit under IRC § 6426(b) expired after December 31, 2011, but may still be claimed for open tax years. See also IRS Pub. 510 (2025).

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Biodiesel Mixture Tax Credit (IRC § 6426(c))

The Biodiesel Mixture Credit, as extended through December 31, 2024 under the Inflation Reduction Act of 2022, provides a $1.00 per gallon excise tax credit for biodiesel or renewable diesel used by the taxpayer to produce a qualified mixture with petroleum diesel. To qualify, the mixture must be sold or used by the producer in a trade or business and meet the definition of a “biodiesel mixture” under IRC § 6426(c)(3), which requires the fuel to be sold or used as a fuel and contain at least 1% biodiesel. The credit is first applied against the taxpayer’s excise tax liability under IRC § 4081 and may be claimed using Form 720, Schedule C.

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Biodiesel Mixture Tax Credit: Tax Offset

Under IRC § 6426(a)(1), biodiesel mixture credits must first be applied to offset the taxpayer’s excise tax liability under IRC § 4081. IRC § 4081 imposes excise tax on:

• The removal of taxable fuel from a refinery or terminal;

• The entry of taxable fuel into the United States for consumption, use, or warehousing; and

• The sale of taxable fuel to an unregistered person, unless a prior taxable removal or entry occurred.

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“Taxable fuels” under IRC § 4081 include gasoline, kerosene, and diesel. As of 2025, the federal excise tax rates are 18.3 cents per gallon for gasoline and 24.3 cents per gallon for kerosene and diesel. These rates exclude the 0.1 cent per gallon Leaking Underground Storage Tank (LUST) tax. See IRS Pub. 510 (2025).

Biodiesel Mixture Tax Credit: Payments for Excess Credits

IRC § 6427(e) provides that if a taxpayer produces a mixture described in IRC § 6426 or sells or uses an alternative fuel in its trade or business to power a motor vehicle, motorboat, or aircraft, the Treasury will pay the taxpayer an amount equal to the applicable IRC § 6426 fuel credit. This provision ensures that taxpayers receive the full benefit of fuel tax credits, even when the credits exceed their federal excise tax liability or when no such liability exists.

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IRC § 6427(e)(6)(B) provides that any Biodiesel Mixture (as defined in IRC § 6426(c)(3)) sold or used on or before December 31, 2022 may be eligible for a payment from the Treasury in excess of the taxpayer’s federal excise tax liability. Note: The Inflation Reduction Act of 2022 extended certain fuel credits through December 31, 2024. Taxpayers should monitor pending legislation (e.g., H.R. 1990) for further extensions or modifications.

 

The taxpayer may claim the excess credit amount either as a direct payment under IRC § 6427(e) or as a refundable income tax credit under IRC § 34(a), by filing Form 4136, Credit for Federal Tax Paid on Fuels, with their federal income tax return. See also IRC § 6427(e)(6)(B). Note: The availability of payments under § 6427(e)(6)(B) is limited to biodiesel mixtures sold or used on or before December 31, 2022, unless extended by future legislation.

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IRC § 6427(k) governs whether a taxpayer may receive a direct payment or must instead claim a refundable income tax credit. Entities exempt from federal income tax—such as governmental units and tax-exempt organizations—are generally eligible for direct payments. All other taxpayers must follow the income tax credit procedures.

 

Except for two specific exceptions, taxpayers must file Form 4136, Credit for Federal Tax Paid on Fuels with their federal income tax return to claim a refundable credit. The exceptions are:

• (1) taxpayers with quarterly fuel excise tax liabilities of $750 or more, and

• (2) claims for fuel mixtures or alternative fuels covering a period of at least one week and totaling $200 or more, as provided under IRC §§ 6427(e)(1) or (e)(2).​ 

• In these cases, taxpayers may instead file Schedule C of Form 720 or Schedule 3 of Form 8849.

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For example, if a taxpayer has an alternative fuel claim exceeding $200 for a qualifying period, they may use Form 720, Schedule C or Form 8849, Schedule 3 to claim the excess credits.​ Taxpayers without excise tax liability are not eligible to use Form 720 or Form 8849. Instead, they must file Form 4136 to claim a refundable income tax credit under IRC § 34.

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Biodiesel Mixture Tax Credit: Income Tax Credits 

If a taxpayer is not eligible for, or does not timely file an allowable claim for, payment under IRC § 6427(e), but used the fuel in a manner that qualifies for the excise tax credits under IRC § 6426, the taxpayer may claim a refundable income tax credit under IRC § 34(a).
 

The IRC § 34 credit comprises the following components:

• Gasoline used on a farm for farming purposes (IRC § 6420),

• Special fuels used for non-highway purposes (IRC § 6421), and

• Fuels used for nontaxable purposes (IRC § 6427).​

 

To claim the IRC § 34 credit, taxpayers must file Form 4136, Credit for Federal Tax Paid on Fuels as an attachment to their federal income tax return. Claims must be filed within the applicable statute of limitations—generally, three years from the date the return was filed or two years from the date the tax was paid, whichever is later (see IRC § 6511).
 

Taxpayers may elect to forgo the IRC § 6426 excise tax credit regime and instead claim a nonrefundable income tax credit under IRC § 40 (alcohol fuels) or IRC § 40A (biodiesel and renewable diesel). However, IRC § 87 requires that credits claimed under §§ 40 and 40A be included in gross income in the year the credit is determined.

• Chief Counsel Advice (CCA) 201342010 clarified that biodiesel blenders who claim IRC § 6426(c) credits and IRC § 6427(e) payments—rather than § 40A credits—do not need to include excess credits or payments in gross income.

• Additionally, CCA 201406001, provides that taxpayers must first offset any excise tax liability under IRC §§ 4041 or 4081 with credits under IRC §§ 6426(b), (c), (d), or (e) before deducting the remaining liability as a business expense or cost of goods sold. Excess credits may then be claimed under IRC § 6427(e) or IRC § 34 and are not includible in gross income.

• For example, if a taxpayer incurs $1,000 in excise tax liability and claims an $800 credit under IRC § 6426(a), the deductible expense or cost of goods sold must be reduced by $800, resulting in a $200 deduction or inclusion.

 

​Although the CCAs do not explicitly address alcohol and alternative fuel mixture credits, similar treatment should apply due to the analogous structure of IRC § 6426 provisions.

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Claims for payment under IRC § 6427(e) must be submitted no later than the last day of the first calendar quarter following the earliest quarter of the taxpayer’s income tax year covered by the claim. For example, a calendar-year taxpayer who sells or uses alternative fuel during June and July must file the claim by September 30 of that same year. 

 

Note: If a taxpayer receives a payment under IRC § 6427(e) for a mixture for which the taxpayer could have been allowed a credit under IRC § 6426, the amount of the payment is considered an “excessive amount” for purposes of IRC § 6206.

• Such excessive amounts, along with any applicable civil penalties under IRC § 6675, may be assessed and collected by the IRS as excise taxes under IRC § 4081.

• Likewise, if a taxpayer claims a refundable income tax credit on Form 4136 for a mixture already credited under IRC § 6426, the IRS may assess an underpayment of income tax liability under standard deficiency procedures.

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Biodiesel Mixture Tax Credit: Certification Statement

• To claim the biodiesel mixture credit, the taxpayer must obtain a certification statement from the producer or reseller, as outlined in IRS Notice 2005-62. The statement must identify the product; specifies the product’s biodiesel, agri-biodiesel, and/or renewable diesel content; confirms that the product is properly registered as a fuel with the U.S. Environmental Protection Agency; and confirms that the product meets the requirements of ASTM Standard D6751. 

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The Alternative Fuel Tax Credit (IRC § 6426(d))

The Alternative Fuel Tax Credit under IRC § 6426(d) provides a $0.50 per gallon excise tax credit for alternative fuel sold by the taxpayer for use in a motor vehicle, motorboat, or aircraft. The credit is applied against the taxpayer’s excise tax liability under IRC § 4041, which serves as a backup tax when fuel is not taxed under IRC § 4081.

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This credit is unique among IRC § 6426 credits in that it does not require the fuel to be blended into a mixture. However, to claim the credit, the taxpayer must be registered with the IRS as an alternative fueler under IRC § 4101, typically by filing Form 637, Application for Registration (for Certain Excise Tax Activities).

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The Alternative Fuel Tax Credit: Tax Offset

IRC § 6426(a)(2) requires that the alternative fuel credit be applied first to offset the taxpayer’s excise tax liability under IRC § 4041. This provision acts as a secondary mechanism when fuel is not subject to tax under IRC § 4081.

 

IRC § 4041 imposes excise taxes on fuels used for specific purposes, such as highway transportation, rail, marine, and aviation applications. The person selling the fuel to the owner, lessee, or other operator of the vehicle is responsible for the tax. IRC § 4041(a)(1) imposes an excise tax on liquid fuels other than gasoline, as defined in IRC § 4083 that is

• (i) sold by any person to an operator of a diesel-powered highway vehicle for use as a fuel in such vehicle, or

• (ii) used by any person as a fuel in a diesel-powered highway vehicle unless there was a taxable sale of the fuel under IRC § 4041(a)(1)(i). No tax is imposed, however, on the sale or use of any liquid on which tax was imposed under IRC § 4081 (other than tax at the Leaking Underground Storage Tank Trust Fund financing rate) and not credited or refunded. 

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IRC §§ 4041(a)(1) and 4083(a)(1) provide the term “taxable fuel” generally includes the following fuel types:

• Diesel;

• Kerosene;

• Alternative fuels;

• Compressed natural gas (CNG); and

• Fuels used in aviation.

 

IRC § 6426(d)(4) Carbon Capture Requirement

• In general, the fuel must also be certified as required by the Secretary, as having been derived from coal produced at a gasification facility which separates and sequesters not less than the applicable percentage of such facility's total carbon dioxide emissions.

• IRC § 6426(d)(4)(B) states the applicable percentage is—

  • ​50% for fuel produced between October 1, 2009 and December 30, 2009, and

  • 75% for fuel produced after December 30, 2009.

 

As of 2025, the IRC § 4041 excise tax rates range from 18.3 to 24.3 cents per gallon, depending on the fuel type. Aviation fuel is taxed at 21.8 or 4.3 cents per gallon, per IRC § 4041(c).

 

IRC § 4041(b)(1)(A) exempts fuels used in off-highway business activities, as defined in IRC § 6421(e)(2). However, diesel-powered trains are excluded from this exemption under IRC § 4041(b)(1)(C). IRC § 6421(a) allows the ultimate purchaser of gasoline used in off-highway business activities to receive a refund of the excise tax paid, calculated by multiplying the gallons used by the applicable tax rate under IRC § 4081. Section 4081 imposes tax on certain removals, entries, and sales of taxable fuel.

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IRC § 6421(e)(2)(A) defines the term "off-highway business use" generally to mean any use by a person in a trade or business of such person or in an activity of such person described in IRC § 212 (relating to production of income) otherwise than as a fuel in a highway vehicle.

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Fuel excise taxes under IRC §§ 4041 and 4081 apply to fuels used in transportation. However, when fuels are used for non-transportation or exempt purposes, taxpayers may be eligible for refunds or credits.

 

The general rule contained in IRC § 6427(a) provides that if an excise tax has been imposed on the sale of an alternative fuel and the ultimate purchaser uses the fuel for a nontaxable use, Treasury shall pay to the ultimate purchaser an amount equal to the excise taxes imposed on the sale. IRC § 6427(a) authorizes the Treasury to refund excise taxes paid on alternative fuels used for nontaxable purposes, ensuring taxpayers are reimbursed when fuel is not used in taxable applications.

 

The following uses of fuels are considered nontaxable for excise tax purposes (see Publication 510, Excise Taxes), or the instructions for Form 720 for a complete list of nontaxable uses):

• Fuels used for off-highway business uses (e.g., fuel used to power a generator for a business);

• Fuels used on a farm for farming purposes (e.g., to power farming equipment);

• Exported fuels;

• Fuels used for intercity, school, and local buses;

• Fuels used by a qualified blood collector organization;

• Fuels used in an aircraft or vehicle owned by an aircraft museum;

• Fuels exclusively for use by a nonprofit educational organization; and

• Fuels exclusively for use by a state, a political subdivision of a state, or the District of Columbia.

 

IRC § 6427(l)(1) provides that the Treasury shall refund the excise taxes imposed on diesel fuel or kerosene used in nontaxable applications, reduced by any payment made to the ultimate vendor under IRC § 6427(l)(4)(C)(i).

 

IRC § 6427(l)(2) defines the term “nontaxable use,” for purposes of IRC § 6427(l), to mean any use exempt from excise tax under IRC § 4041(a)(1), excluding exemptions based solely on prior tax imposition.

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Treasury Regulations §§ 48.4041-7, 48.6421-1(d)(1), and 48.6427-1(d) clarify that dual-use fuel (e.g., fuel used to power both propulsion and auxiliary equipment) is generally taxable, unless a separate motor is used exclusively for non-propulsion purposes. Examples include:

• Diesel fuel used to operate a concrete mixer via power take-off from the vehicle’s engine (taxable)

• Fuel oil trucks using the same motor to power discharge pumps (taxable)

• Fuel used in a separate motor for auxiliary equipment (non-taxable)

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Alternative Fuel Tax Credit: Payments for Excess Credits

IRC § 6427(e) provides that if a taxpayer produces a qualified fuel mixture under IRC § 6426 or sells or uses alternative fuel in its trade or business to power a motor vehicle, motorboat, or aircraft, the Treasury will pay the taxpayer an amount equal to the applicable IRC § 6426 fuel credit. This provision ensures that taxpayers receive the full benefit of fuel tax credits, even when the credits exceed their federal excise tax liability or when no such liability exists.
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IRC § 6427(e)(6)(C) states that any Alternative Fuel (as defined in IRC § 6426(d)(2)) sold or used on or before December 31, 2020 may be eligible for a Treasury payment exceeding the taxpayer’s federal excise tax liability. Note: IRC § 6427(e) does not apply to the Alternative Fuel Mixture Credit (defined in IRC § 6426(e)) for periods after December 31, 2011, pursuant to IRC § 6427(e)(6)(D).
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Taxpayers may claim excess credits either as a direct payment under IRC § 6427(e) or as a refundable income tax credit under IRC § 34(a), typically by filing Form 4136 with their federal income tax return. See also IRC § 6427(e)(6)(C).

 

IRC § 6427(k) governs whether a taxpayer may receive a direct payment or must instead claim a refundable income tax credit.

• Entities exempt from federal income tax—such as governmental units and tax-exempt organizations—are generally eligible for direct payments. All other taxpayers must follow the income tax credit procedures.

• Except for two specific exceptions, taxpayers must file Form 4136, Credit for Federal Tax Paid on Fuels, with their federal income tax return to claim a refundable credit. The exceptions are:

  • (1) taxpayers with aggregate quarterly fuel excise tax liabilities of $750 or more, and

  • (2) claims for fuel mixtures or alternative fuels covering a period of at least one week and totaling $200 or more, as provided under IRC §§ 6427(e)(1) or (e)(2).​ 

  • In these cases, taxpayers may instead file Schedule C of Form 720 or Schedule 3 of Form 8849 to claim the excess credits.

• Taxpayers without excise tax liability are not eligible to use Form 720 or Form 8849. Instead, they must file Form 4136 to claim a refundable income tax credit under IRC § 34.

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Alternative Fuel Tax Credit: Income Tax Credits:

• For additional details, refer to the “Biodiesel Mixture Credit: Income Tax Credits” section above, as the treatment for alternative fuel credits under IRC § 34 is substantially similar.

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Alternative Fuel Tax Credit: Registration Requirement

To claim the alternative fuel and alternative fuel mixture credits, the taxpayer must be registered with the IRS under IRC § 4101 by filing Form 637, Application for Registration (for Certain Excise Tax Activities). Claims are typically reported on Schedule C of Form 720, Quarterly Federal Excise Tax Return or Schedule 3 of Form 8849, Claim for Refund of Excise Taxes, depending on the claim type.

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The Alternative Fuel Mixture Tax Credit (IRC § 6426(e))

The Alternative Fuel Mixture Tax Credit under IRC § 6426(e) provides a $0.50 per gallon excise tax credit for alternative fuel used by the taxpayer to produce a qualified mixture with gasoline, diesel, or kerosene. The mixture must be sold or used by the taxpayer in a trade or business.

 

Note: This credit was available through December 31, 2020, and is subject to legislative renewal.

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Alternative Fuel Mixture Tax Credit: Tax Offset:

IRC § 6426(a)(1) requires that the alternative fuel mixture credit be applied first to offset the taxpayer’s excise tax liability under IRC § 4081. For mixtures produced after December 31, 2011, the credit is limited to the amount of excise tax liability and cannot be claimed as a refundable payment under IRC § 6427(e). See IRC § 6427(e)(6)(D).

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Alternative Fuel Mixture Tax Credit: Registration Requirement

To claim the Alternative Fuel Mixture Tax Credit under IRC § 6426(e), the taxpayer must be registered with the IRS under IRC § 4101 by filing Form 637, Application for Registration (for Certain Excise Tax Activities. Registration is mandatory and must be completed prior to claiming the credit.

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IRC § 6427: Fuels Not Used For Taxable Purposes

IRC § 6427(a) provides that if excise tax has been imposed on the sale of alternative fuel and the ultimate purchaser uses the fuel for a nontaxable purpose or resells it, the Secretary shall refund (without interest) the amount of tax paid, reduced by any tax that would have been imposed on such use if the sale had not been taxed.

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Fuels Not Used for Taxable Purposes
Claims under this code section may include:

• Intercity, local, or school buses

• Use for farming purposes

• Use by certain aircraft museums or in certain other aircraft uses

• Biodiesel and alternative fuel

• Blend stocks not used for producing taxable fuel

• Nontaxable uses of diesel fuel and kerosene

• Diesel fuel used to produce emulsion

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Note: Treas. Reg. 48.6427-8, Diesel fuel and kerosene; claims by ultimate purchasers, illustrates specific requirements and examples for this claim type.​

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Paying the Excise Taxes Due

Taxpayers report fuel excise tax obligations using Form 720, Quarterly Federal Excise Tax Return. If the fuel is used for an exempt purpose or qualifies for applicable fuel tax credits, refunds, or payments, the taxpayer may be eligible for a full or partial refund of the excise taxes paid.

 

Part I of Form 720 lists taxable products and activities, including 24 categories of fuel-related transactions subject to federal excise tax.

 

Examples of taxable diesel fuel events include:

• Removal of diesel at the terminal rack;

• Taxable events other than removal at the terminal rack;

• Sale or removal of biodiesel mixture other than removal at the terminal rack;

• Removal of diesel-water fuel emulsion at the terminal rack or other taxable event; and

• Sale of dyed diesel fuel (LUST tax).

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​Excise tax deposits are generally required semimonthly via Electronic Funds Transfer (EFT). Deposits are due by the 14th day following each semimonthly period, unless the taxpayer’s net liability for Form 720, Part I is $2,500 or less, in which case payment may be made with the return.

To ensure timely deposits, taxpayers should initiate EFTs at least one business day before the due date (before 8 p.m. ET). If the due date falls on a weekend or holiday, deposits made by the next business day are considered timely. Taxpayers who need to correct previously filed Form 720 returns must use Form 720X, Amended Quarterly Federal Excise Tax Return.

When to file Form 720: Form 720 must be filed for each quarter of the calendar year as follows

• Q1 (Jan–Mar): Due April 30

• Q2 (Apr–Jun): Due July 31

• Q3 (Jul–Sep): Due October 31

• Q4 (Oct–Dec): Due January 31                             

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IRS Links, Notices, & Filing Requirements​

• About Form 4136, Credit For Federal Tax Paid On Fuels​

• Rev. Rul. 2018-2, Section 6426.—Credit for alcohol fuel, biodiesel, and alternative fuel mixtures 26 CFR 48.4081-1(c)(3): Gasoline blendstocks (Also Sections 4041, 4081, 4083.)​

  • Clarifies that mixtures of butane and gasoline do not qualify for the alternative fuel mixture credit under IRC § 6426(e) because both are considered taxable fuels.

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