Federal Gas Tax

The federal motor fuels excise tax — collected under 26 U.S.C. § 4081 at the point of production or import — has been the primary funding mechanism for U.S. highway and transit infrastructure since 1956, when Congress dedicated the revenue to the newly created Highway Trust Fund. The rates have not changed since 1993: 18.4 cents per gallon on gasoline and 24.4 cents per gallon on diesel fuel. Because the tax is not indexed to inflation and is charged per gallon rather than as a percentage of price, its real purchasing power has eroded dramatically — the 18.4-cent rate in 2026 has roughly the buying power of about 11 cents in 1993 dollars, while highway construction costs have soared. The Highway Trust Fund receives approximately $40 billion/year from the federal gas tax but has faced recurring solvency problems as fuel efficiency increases, EVs displace gasoline vehicles, and inflation drives up construction costs. Congress has transferred over $275 billion from the general fund since 2008 to keep the Trust Fund solvent — effectively making highway spending partially a general revenue expenditure. The Infrastructure Investment and Jobs Act (2021) provided additional general-fund support. The long-term future of the gas tax — and its potential replacement by a vehicle-miles-traveled (VMT) fee — is one of the most consequential unresolved questions in transportation policy.

Current Law (2026)

The federal excise tax on motor fuels funds the Highway Trust Fund, which finances road, bridge, and transit infrastructure through the Federal Highway System.

Legal Authority

• 26 U.S.C. § 4081 — Imposition of tax on gasoline, diesel fuel, and kerosene — compare State Gas Tax rates for total fuel tax burden
• 23 U.S.C. § 104 — Highway Trust Fund apportionment to states

How It Works

The federal motor fuels excise tax is levied under 26 U.S.C. § 4081 at the point of production or import — not at the pump — and flows directly into the Highway Trust Fund under 23 U.S.C. § 104, which directs roughly 80% of revenue to highway programs and 20% to transit. The tax is a fixed per-gallon charge, not a percentage of price: when gasoline rises from $3 to $5 per gallon, the federal tax stays at exactly 18.4 cents. This per-gallon structure means the real tax burden shrinks every year as inflation erodes its value — since the last rate increase in 1993, the 18.4-cent rate has lost roughly 50% of its real purchasing power while highway construction costs have risen dramatically.

The structural mismatch between a fixed-rate 1993 tax and current construction costs has made the Highway Trust Fund chronically insolvent. Congress has transferred over $275 billion from the general fund since 2008 to keep the HTF solvent, effectively converting highway spending into a partially general-revenue-funded program. The underlying trend is worsening: as vehicles become more fuel-efficient and electric vehicles — which pay no gas tax — grow as a share of the fleet, per-mile revenue falls even if total miles driven stays flat. This is the central long-term fiscal challenge for federal highway funding and makes vehicle miles traveled (VMT) charges an increasingly serious proposal for the next highway reauthorization.

State gas taxes are layered on top of the federal 18.4 cents. Combined federal-plus-state rates range from approximately $0.40/gallon (Alaska) to over $1.00/gallon (California and Pennsylvania, including applicable fees). A driver at 30 MPG logging 12,000 miles/year pays about $74 in federal gas tax annually, with state taxes adding another $100–300 depending on location.

How It Affects You

State Variations

Implementing Regulations

The IRS regulations implementing the federal fuel excise tax live at 26 CFR Part 48 — Manufacturers and Retailers Excise Tax Regulations. Key provisions:

• §§ 48.4081-1 through 48.4081-7 — Tax on taxable fuel at the terminal rack (the primary collection mechanism). The federal gas tax is a rack tax — it is imposed and collected at the point where fuel exits the bulk terminal system (the "rack"), not at the retail pump. The tax attaches when: (1) fuel is removed at the rack from a registered terminal by the position holder or an enterer; (2) fuel enters the United States through a pipeline/terminal system by an importer; (3) fuel is removed from a terminal by an unregistered person (all such removals are taxable regardless of intended use); or (4) the position holder uses taxable fuel directly. The person liable for the tax is the enterer (refiner or importer who owns fuel as it crosses the rack) or position holder (whoever holds title at removal from the terminal). Retailers and consumers do not remit the tax to the IRS — it has already been collected by the time fuel reaches a gas station.
• §§ 48.4082-1 through 48.4082-7 — Exemptions from the rack tax: key categories:
  • Pipeline/terminal transfers between registered persons — fuel removed at the rack and delivered to another registered terminal or pipeline operator in the bulk transfer system is not taxed at that removal; tax is deferred until final removal for highway use
  • Dyed diesel fuel (§ 4082(b)) — diesel fuel that has been dyed with a prescribed red dye (Solvent Red 26 or Solvent Red 164) in a concentration of at least 3.9 pounds per 1,000 barrels is exempt from the § 4081 rack tax; dyed diesel is reserved for off-highway use (farming equipment, construction machinery, railroad locomotives, heating oil, military use); using dyed diesel in any vehicle on public highways is a federal crime regardless of who dyes it or why — civil penalties up to $1,000 per gallon plus a $10,000 per violation penalty apply; IRS inspectors can and do check fuel tanks on the road
  • Removal to a licensed refinery — fuel returned for further refining is not taxed at removal
  • Exports — fuel removed for direct export from U.S. terminals is exempt; exporters must be registered and maintain records
• §§ 48.4041-1 through 48.4041-21 — Residual retail-level tax on special motor fuels not covered at the rack: this is the backup tax collection mechanism for fuels or fuel situations not reached by § 4081. Key provisions:
  • § 48.4041-15 — No tax on fuel sold to state and local governments for their exclusive use; government vehicles are exempt from the motor fuels excise taxes
  • § 48.4041-10 — No tax on fuel sold for use as supplies for vessels or aircraft engaged in international transportation (bunker fuel and aviation fuel exemptions)
  • § 48.4041-16 — No tax on fuel sold for export (must be identified as export-bound and actually exported)
  • § 48.4041-19 and 48.4041-20 — Reduced-rate and full exemption for qualified methanol/ethanol fuel (blends of ≥85% methanol/ethanol from non-petroleum sources receive reduced tax treatment)
  • § 48.4041-21 — Compressed natural gas (CNG) delivery into a motor vehicle propulsion tank triggers the § 4041 tax at 18.3 cents per gasoline-gallon equivalent (the energy-equivalent rate) unless an exemption applies
• §§ 48.4221-1 through 48.4222 — Tax-free sales and registration: manufacturers and distributors claiming exemption from excise taxes must generally be registered with the IRS under § 4222. Registration allows tax-free transactions between producers, further manufacturers, and qualified exporters. State and local governments do not register — they establish exemption by providing a statement of exclusive government use.
• §§ 48.6427-1 through 48.6427-11 — Fuel tax credits and refunds: non-highway users of taxable fuel (farmers using diesel for off-road tractors, commercial aviation purchasers of jet fuel taxed at the pump, state/local government vehicle operators who inadvertently paid tax) may claim a refund or credit for the federal excise tax. Claims filed on Form 8849 (refund) or claimed as a credit on Form 720 (excise tax return). Transit authorities that purchase diesel fuel at the taxed rack price and use it in local buses may claim a refund under § 6427(b).

The practical compliance chain: refiners and importers register with IRS, pay the rack tax on each gallon removed for highway use, and file Form 720 (Quarterly Federal Excise Tax Return). The tax is remitted semi-monthly via Electronic Funds Transfer. The revenues flow to the Highway Trust Fund — about $40 billion/year — split between the Highway Account (most road programs) and the Mass Transit Account (transit formula grants). State transportation departments receive HTF apportionments under formulas in Title 23 U.S.C.

• 26 CFR Part 40 — Excise tax procedural rules (§ 40.6302(a)-1 — voluntary payments of excise taxes by electronic fund transfer)
• 26 CFR Part 1 — Income tax (§ 1.164-5 — deductibility of certain retail sales taxes and gasoline taxes)
• 26 CFR Part 301 — Procedure and administration (§ 301.6011-12 — required electronic filing of excise tax returns)

Pending Legislation

• Gas tax increase: Proposals to raise the federal rate and index to inflation. Politically difficult.
• Vehicle Miles Traveled (VMT) tax: Pilot programs to replace the gas tax with a per-mile fee, addressing the EV revenue gap. Several states have VMT pilots.
• General fund transfers: Continuing reliance on general fund transfers to keep the HTF solvent.
• IIJA: The Infrastructure Investment and Jobs Act (2021) provided $550 billion in new spending, partially funded by non-gas-tax revenue, but did not permanently fix HTF solvency.

Recent Developments

• Gas tax still frozen at 1993 levels — 33 years: The federal gas tax of $0.184/gallon has not been increased since October 1993. Adjusted for inflation, it would be approximately $0.38/gallon in 2026 dollars. The Highway Trust Fund has been structurally insolvent since 2008, requiring approximately $275 billion in general fund transfers through 2026 to maintain solvency. No gas tax increase has passed despite multiple bipartisan proposals — raising gas taxes remains one of the most politically difficult fiscal decisions in Washington.
• IIJA infrastructure funding bridging the gap through 2026: The Infrastructure Investment and Jobs Act (2021) provided $110 billion in dedicated highway, bridge, and road funding over five years (through approximately 2026), funded by non-gas-tax sources including general fund appropriations. As this supplemental funding winds down, the HTF structural gap returns to the foreground. Congress will need to address the funding model before the next infrastructure reauthorization.
• EV registration surcharges spreading: As of 2025, over 30 states have enacted annual EV surcharges (ranging from $50 to $225/year) to compensate for lost gas tax revenue. These fees don't fully replace gas tax revenue — a vehicle paying $200/year in registration surcharges drives far fewer effective "road-maintenance dollars" than a comparable ICE vehicle paying $0.18+/mile in combined federal and state fuel taxes at 30 MPG.
• VMT pilot programs maturing: Oregon's OReGO pay-per-mile program has been running since 2015, and Utah's Road Usage Charge program has expanded. Federal IIJA funding supported VMT pilot programs in multiple states. A national vehicle miles traveled tax is the most technically viable long-term replacement for the gas tax, but political and privacy objections have prevented federal adoption. The next highway reauthorization may force a resolution.