The IRS says it will not impose a penalty when dyed diesel fuel is sold for highway use or used on highways anywhere in the country, a break that runs from Oct. 1 through Dec. 31, 2026. The relief follows President Donald Trump’s Oct. 5 executive order, “Emergency Tax Relief on Diesel Fuel,” and the agency announced it Oct. 14 in release IR-2026-122. The IRS says the relief applies only for federal tax purposes and does not affect state fuel taxes or penalties.
Dyed diesel is normally reserved for off-road use, and putting it in a road vehicle can bring penalties. For farmers, haulers and anyone with a truck that has dyed fuel in the tank, the open question is what still applies in their own state. The federal break is clear, but the rest depends on a state agency.
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What did the IRS actually stop enforcing?
The IRS says the relief covers excise tax penalties for dyed diesel sold for use in, or used in, diesel-powered highway vehicles. It names penalties for failing to make semimonthly deposits of tax or to keep adequate records. Ordinary collection and enforcement procedures are suspended for the period, fuel compliance officers are reassigned, and the agency says no federal inspections of on-road dyed fuel use will take place.
Taxpayers do not have to keep records to prove they are eligible, and sellers have no duty to investigate or document what the fuel is used for. A taxpayer who receives a penalty notice despite qualifying should follow the instructions on the notice or contact the IRS.
The executive order itself says “restricted global diesel supply has led to rising prices, and these key industries have been particularly hard hit.” It directed the Treasury Secretary to have the IRS announce the penalty relief within five days.
Is the federal diesel tax gone, too?
No. The IRS release does not forgive the excise tax. It says dyed diesel would be taxed if sold for highway use or used to power a vehicle on the highway, and that the relief is about penalties and enforcement. The agency says it anticipates further guidance on postponing certain excise taxes under 26 U.S.C. 7508A, including how the relief applies to Form 720, the quarterly federal excise tax return.
The IRS also says it will explore ways to eliminate the obligation to pay any amounts that are deferred. Law firm Holland & Knight, in an Oct. 16 analysis, said it believes Treasury likely lacks the authority to eliminate the tax itself, because Section 7508A provides only time-limited relief from penalties, interest or additions to tax. The firm also said it is unclear what practical effect the relief will have, given the limited retail supply of dyed diesel for highway use.
Where do state fuel rules stand?
The IRS says many states, though not all, have given similar relief and tells taxpayers to check with their state agencies. The U.S. Department of Agriculture said Oct. 29 that 31 states have taken or announced dyed-diesel action. Agriculture Secretary Brooke Rollins said in the USDA release that “their leadership is an important part of ensuring this relief reaches the producers who need it most.”
What each state did varies. A Forvis Mazars review published Oct. 22 found that Georgia waived certain dyed-fuel penalties through Nov. 5 and also suspended its motor fuel tax during the emergency. North Carolina waived the penalty but left its 41-cent-per-gallon excise tax due. Texas suspended highway-use restrictions, but its 20-cent-per-gallon tax still applies to taxable on-highway use.
In Nevada, Gov. Joe Lombardo directed the Highway Patrol to suspend enforcement of the state’s red-dyed diesel restrictions, saying that “Nevada will do its part to implement President Trump’s executive order.” Per FOX5 Las Vegas, DMV Director Tonya Laney will waive administrative fines incurred during the federal order’s period.
What happens when the relief window closes?
The federal relief stays in effect until Dec. 31, 2026. State windows differ, with Forvis Mazars reporting dates that run from Sept. 23, 2026 in Louisiana to Feb. 2, 2027 in Iowa, and several that expire in October or November unless extended. Nevada said its suspension will continue for a period after the federal order expires so residual red dye in fuel systems can clear.
Forvis Mazars cautioned that relief from dyed diesel restrictions or penalties does not necessarily erase the underlying federal or state fuel tax, and that a state’s presence on a relief list does not by itself confirm that on-road use is free of state tax.
Is a farm truck still running dyed diesel after Dec. 31?
Penalty relief that ends Dec. 31, a federal tax whose status is still unsettled and state rules that differ from one border to the next make fuel one more cost a household has to track. Fuel is rarely the only place a fixed budget leaks.
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This article was produced with AI assistance and edited for accuracy against the sources linked above.
Warren Cohen is a finance writer based in Phoenix, Arizona, covering personal finance topics including credit, banking, and beginner investing. He earned his degree in business administration from Arizona State University and began his career working in consumer finance, where he gained direct experience with lending and credit systems. He now writes for personal finance websites and fintech platforms, focusing on clear, practical content that helps readers make informed financial decisions.
