The IRS will impose no penalty when dyed diesel fuel is sold for highway use nationwide, retroactive to October 1 and running through December 31.
Zoom in: Dyed diesel is the same fuel as regular diesel, colored red and sold 24.4 cents a gallon cheaper because it is exempt from the federal highway excise tax and meant for tractors and other off-road use.
By the numbers: Under notice IR-2026-122, all IRS Fuel Compliance Officers are being reassigned, no federal inspections of on-road dyed fuel will occur, and taxpayers need no records to prove eligibility.
Yes, but: The order defers payment and leaves the tax itself in place. The IRS says it anticipates further guidance on postponement and will "explore avenues to eliminate the obligation to pay any amounts deferred."
- Molly Nixon, a senior fellow in executive power at the Cato Institute, told NPR that "the president really doesn't have the legal authority to say to the IRS, don't collect the tax," and that removing it may require legislation.
The other side: South Dakota Governor Larry Rhoden, a Republican, is telling drivers to hold off: "we're going to take our time and make sure that nobody's caught in the backwash of unintended consequences because it is very confusing."
- The state trucking association sent out a flyer advising members to keep current fuel practices given the tax uncertainty, NPR reported.
Why it matters: Diesel near $5.89 a gallon in farm country means the 24.4 cent gap is real money per fill, and whoever buys red fuel now may still get a bill, because the relief covers penalties and leaves the tax itself on the books.
The bottom line: The waiver is federal only. State diesel taxes and state penalties still apply, and the IRS says many but not all states have matched the relief.
