What is red-dyed diesel?
Red-dyed diesel is intended for qualifying off-highway uses. Generally, this includes farmers and ranchers running equipment like tractors and harvesting equipment, along with construction equipment and generators. Most off-highway diesel is ultra-low sulfur diesel, similar to what trucks use, but it is dyed red so it can be identified for tax purposes.
The dye itself does not tell you the fuel’s grade or sulfur content. For qualifying uses, this fuel is generally exempt from federal highway diesel excise tax. Federal and state authorities monitor its use, including testing vehicle fuel tanks. Eligibility depends on how the fuel is used, not simply whether the person buying it is a farmer or rancher.
What is the executive order?
In an attempt to lift some of the burden Americans are feeling from high fuel prices, President Trump signed an executive order on October 5 directing temporary federal tax deferral and penalty relief for highway use of red-dyed diesel.
The order covers October 5 through December 31, 2026, with the Treasury and the IRS responsible for establishing the details and conditions.
What are the biggest risks right now?
Before you consider filling up with red-dyed diesel, it’s important to understand that the order doesn’t give drivers the green light just yet. Until federal and state guidance is finalized, the safest choice for most owner-operators is to stick with regular diesel. Here are the biggest risks to keep in mind.
Federal relief isn’t in place yet. The order directs the Treasury to decide whether a qualifying event has occurred and who counts as an affected taxpayer. Until that happens, nothing currently allows red-dyed diesel on public roads without risk of a penalty.
Most state waivers don’t cover trucking. As of this writing, most states that have relaxed their dyed fuel rules have done so only for agricultural or timber harvesting use. Texas is the only state with a waiver broad enough to cover over-the-road trucking.
Crossing state lines can lead to steep fines. If you fill up with red-dyed diesel in a state that allows it and then drive into one that doesn’t, you could be cited, and those penalties are often costly.
The dye stays in your tank. Red dye is designed to be hard to remove and can stay in your fuel system for up to six months unless the system is flushed and cleaned. That means you could face a citation after the relief period ends, even if you filled up when it was allowed.
The terms are still unknown. It’s not yet clear what conditions may come with the deferred tax or whether those taxes will ever be forgiven. Full forgiveness would likely require action from Congress.
Is the tax being eliminated?
The important distinction is that the order calls for deferring the tax, not permanently eliminating it. The administration is exploring ways to forgive the deferred taxes, but that is not guaranteed.
Using the White House’s stated federal tax figure of 24.4 cents per gallon, the potential upfront relief would be about $61 on a 250-gallon fill, assuming that amount is fully reflected in the price. State action is another major factor.
What about state taxes?
This is where things get more complicated.
Drivers need to know whether the states where they operate allow the use and provide additional tax relief. A federal waiver allowing red-dyed diesel does not necessarily mean all state diesel taxes disappear. State rules and requirements will still matter.
How does this impact fuel costs for owner-operators leased onto a fleet versus those under their own authority?
Leased to a fleet
For independent contractors leased onto a fleet, federal relief alone may not outweigh the discounts their fleet has established with truck stops. For instance, if you have a $0.50-per-gallon discount through your fleet and purchase 250 gallons, that saves you $125. In the same situation, federal relief of $0.244 per gallon would provide about $61 in upfront relief. That puts the fuel discount ahead by $64. This assumes the same starting fuel price, no additional state relief, and no extra fees or discounts on the red-dyed diesel. Additional state relief could change the comparison.
Operating under your own-authority
For owner-operators operating under their own authority, the same math applies. Depending on the fuel discounts you already have, this executive order could play a role in your fuel-buying decision. If you have no discount set up, about $61 in upfront relief on 250 gallons could be helpful to your operation. If you already receive a strong discount, your current option may still cost less.
Availability and other costs
Availability is another factor. Red-dyed diesel may be available through commercial cardlocks, regional bulk petroleum distributors, or local stations serving farming communities, but you should not assume it will be available at your regular truck stop. Going out of your way and taking the time to find it could cut into your revenue and make the potential savings less worthwhile. Before making a change, compare the actual price you would pay after discounts and applicable taxes. Then account for any extra miles, time, and the possibility that deferred taxes may still need to be paid later.
