The Fuel Tax Credit (FTC) is a refundable tax credit for fuel used for off-highway business and farming purposes. The credit is available only for nontaxable uses of gasoline, aviation gasoline, undyed diesel, and undyed kerosene. The credit does not apply to the personal use of fuels, including for use in the engine of a registered highway vehicle (even if that vehicle is used off-highway). Eligibility The credit is available for certain off-highway business and farming uses that constitute nontaxable use. Some common types of nontaxable use in small businesses include – use in generators, compressors, power saws, for cleaning purposes (type number 2); qualified blood collector organization for its exclusive use in the collection, storage, or transportation of blood (type number 11); exclusive use by a nonprofit educational organization exempt from income tax under section 501(a) that meets certain requirements (type number 13). The table below lists the nontaxable uses of fuels. No. Type of use 1 On a farm for farming purposes 2 Off-highway business use (for business use other than in a highway vehicle registered or required to be registered for highway use) (other than use in mobile machinery) 3 Export 4 In a boat engaged in commercial fishing 5 In certain intercity and local buses 6 In a qualified local bus 7 In a bus transporting students and employees of schools (school buses) 8 For diesel fuel and kerosene (other than kerosene used in aviation) used other than as a fuel in the propulsion engine of a train or diesel-powered highway vehicle (but not off-highway business use) 9 In foreign trade 10 Certain helicopter and fixed-wing aircraft uses 11 Exclusive use by a qualified blood collector organization 12 In a highway vehicle owned by the United States that isn't used on a highway 13 Exclusive use by a nonprofit educational organization 14 Exclusive use by a state, political subdivision of a state, or the District of Columbia 15 In an aircraft or vehicle owned by an aircraft museum 16 In military aircraft For a complete explanation of each type of use, refer to Publication 510, Excise Taxes – Chapter 2, Fuel Tax Credits and Refunds, under the section labeled Definitions of Nontaxable Uses. How to compute and report FTC Form 4136, Credit for Federal Tax Paid on Fuels, is used to compute the credit amount and the total from that form is carried to the appropriate form or schedule of the tax return. Individuals report it on Schedule 3, corporations report it on Schedule J, S-Corporations report it directly on the 1120-S and partnerships report it on the Schedule K. Refer to Instructions for Form 4136 for complete details. Be careful claiming the FTC Make sure you are qualified before claiming the credit. Keep copies of all the documents you used to find out if you qualify and determine the amount of your credit. If the IRS audits your return and finds your FTC claim is incorrect and you don’t have the documents to show you qualified, you must pay back the amount of the FTC you received in error with interest. The IRS may also charge you an accuracy penalty or a fraud penalty. Resources Useful forms and publications Publication 510, Excise Taxes Form 4136, Credit for Federal Tax Paid on Fuels Instructions for Form 4136 Publication 225, Farmers Tax Guide
