Dyed Diesel Trucks: IRS Drops Penalties, State Rules Still Apply

What happened

Dyed diesel trucks got a federal break this week, but it has limits. Dyed diesel is off-road fuel, usually red. It is normally banned on highways because it is sold without road taxes.

On Oct. 5, Executive Order 14435 told the Treasury to look at waiving penalties for dyed diesel on highways. On Oct. 14, the IRS said it will not charge penalties for dyed diesel used on highways nationwide. The relief runs from Oct. 1 through Dec. 31, 2026.

Here is the catch, reported by Transport Topics on Oct. 16: the federal excise tax itself was not waived. And the IRS relief does not cover state taxes or state penalties.

Other points from the IRS relief, as reported by CDLLife:

• No federal roadside checks of dyed fuel during the relief period.
• Penalties for late tax deposits are also waived.
• Each state may or may not offer its own relief.

What it means for owner-operators

The federal rule is only half the story. Carmen Martorana Jr. of the International Fuel Tax Association (IFTA) warned that without state permission, carriers may still face penalties.

State rules are all over the map:

• Texas suspended its dyed diesel restrictions statewide, with no end date. The state tax of 20 cents a gallon still applies.
• Missouri allows it on state highways for all vehicles through Dec. 31.
• Kentucky allowed truckers and farmers as of Oct. 8.
• Nebraska gives highway-registered vehicles 90 days of relief, through Dec. 23.
• Many other states, like Alabama, Arkansas, Louisiana and Tennessee, allow it only for farm or forestry work.

So a truck running legally in Texas can cross into a state where the same tank is still a problem. Even where a state says yes, you may still owe fuel-use tax.

What to do next

• Check every state on your route before you fill with dyed diesel. Call that state's fuel tax office if you are not sure.
• Keep your fuel receipts. Write down where you bought it and where you drove.
• Remember the tax is deferred, not gone. Plan for it.
• Report your miles and gallons right on your next IFTA return. Our IFTA third quarter 2026 deadline guide walks you through it.

Need help with IFTA or your fuel permits? Call TCZ Permits at 956-526-6727.