Claiming Federal Fuel Tax Credits in 2024: What Farmers Need to Know

Many farmers can claim the Credit for Federal Tax Paid on Fuels each year by filing Form 4136 with their individual tax return. This refundable credit is based on the gallons of fuel used in an off-highway business use or on a farm for farming purposes. The credit amounts to $0.183 per gallon of gasoline and $0.243 per gallon of undyed diesel fuel.

In 2024, improper Fuel Tax Credit claims were added to the IRS Dirty Dozen list of tax scams due to an increase in "fictitious claims." As a result, many taxpayers who claimed the credit in 2022 or 2023 received notices warning them of a potential $5,000 penalty for each return with erroneous refunds.

• While most farmers claiming the credit are eligible, it's important to recall the qualifications and note the changes to Form 4136 for the 2024 filing season:
• For farm use of gasoline or undyed diesel fuel, the fuel must have been used on a farm for a farming purpose during the tax year the claim is made.
• Dyed or “farm” diesel is not eligible for this credit because the excise taxes being refunded were not paid at the time of purchase.

Pass-through entities can’t claim the credit at the entity level. Instead, the information about the eligible fuels used by the entity is passed through to each partner/shareholder as a statement on their Schedule K-1.

A new Fuel Tax Credit Statement must be included with all claims for the 2024 tax year. The "Statement Supporting Fuel Tax Credit (FTC) Computation -1" was developed to educate taxpayers on eligibility requirements for claiming the credit and to help the IRS verify the legitimacy of claims. The statement requires taxpayers to provide the following information:

• Name and Employer Identification Number of the business where the fuel was used;
• Make, model and type of machinery or vehicle for which the fuel was purchased;
• The actual cost of the fuel claimed for the credit.

No receipts or further explanation should be included, but this information should be maintained in the taxpayer’s records.