If your phone lines and emails have been similar to ours, you’ve likely been hearing from customers asking whether they can now run red-dyed diesel in their trucks. On October 5, President Trump signed a dyed diesel executive order meant to temporarily allow dyed diesel on the highway through the end of the year. The news made it sound like the change was immediate. In practice, several key details still have to be decided.
Latest update: October 26, 2026
On October 14, the IRS issued IR-2026-122, providing penalty relief related to the dyed diesel executive order. On October 21, the IRS followed with IR-2026-125, providing additional guidance on reporting and recordkeeping requirements during the relief period. Together, these announcements provide greater clarity on how the IRS intends to administer the federal relief period running from October 1 through December 31, 2026.
The IRS has also published FAQs to help clarify its guidance.
What the IRS guidance does
- Removes federal penalties. The IRS will not impose penalties related to covered dyed diesel highway use during the relief period.
- Applies relief nationwide. The federal relief applies to taxable uses occurring from October 1 through December 31, 2026.
- Provides more clarity around reporting and recordkeeping. The IRS has provided additional guidance addressing questions that marketers raised after the initial October 14 announcement, including certain reporting and recordkeeping obligations associated with the relief period.
What the IRS guidance doesn’t do
- It doesn’t make dyed diesel legal for highway use in every state. State taxes, restrictions, enforcement policies, and reporting requirements remain separate from the federal relief and continue to vary by state.
- It doesn’t remove the tax. The IRS relief does not eliminate the underlying federal excise tax associated with dyed diesel used on the highway.
- It doesn’t answer every implementation question. Customers should review the IRS guidance and consult their tax advisor regarding any tax, reporting, recordkeeping, or compliance questions specific to their business.
As of October 26, no state in our service territory has made any changes their dyed diesel rules. We believe most of our customers will want to wait until we know more from the federal and state agencies before making any changes. We encourage you to talk with your tax advisor and your state fuel dealers association for further guidance. We will keep our customers updated as we learn more.
The road to dyed diesel savings
Many customers have asked when they could start saving money with dyed diesel. The short answer is that several things have to happen first, and most of them haven’t happened yet.
We put together a roadmap that walks through each step, where it stands as of October 22, and what it would mean for savings.
What the Executive Order Says
You can read the full text of the executive order and the White House fact sheet on the White House website.
The order covers dyed diesel sold for highway use or used on the highway from October 5 through December 31, 2026. It directs federal agencies to:
- Decide on a tax deferral. Treasury must decide whether the law allows it to delay payment of the federal excise tax on dyed diesel used on the highway. If so, the tax would be deferred without penalties or interest.
- Announce penalty relief. The IRS is directed to announce that it won’t apply its usual dyed fuel penalties during this period.
- On October 15 and 21, the IRS issued guidance on penalty relief, reporting and record keeping expectations (see above for details).
- Write the rules. Treasury must issue guidance on who qualifies, what conditions apply, and when any deferred tax must be paid.
- Look at forgiveness. Treasury is asked to explore ways, possibly including new laws, to cancel the deferred tax.
- Explain enforcement. Treasury must say how the IRS will handle fuel tank inspections and fuel sampling. Federal highway safety enforcement continues.
- Reach out to states. The White House will encourage states to adopt similar policies.
What’s Still Being Decided
- The tax is deferred, not forgiven. If Treasury approves the deferral, the federal excise tax of 24.3 cents per gallon would still be owed later unless another action cancels it. A separate 0.1 cent per gallon federal tax for leaking underground storage tanks is not covered at all.
- State laws haven’t changed. The order covers federal taxes and penalties only. State fuel taxes and state bans on dyed fuel in highway vehicles stay in place unless your state acts. Rules vary by state, and some states may act after October 12.
- Heating oil is likely not covered. The order only mentions dyed diesel. It doesn’t mention heating oil, and you shouldn’t assume it allows heating oil in highway vehicles. Ultra-low sulfur heating oil and dyed diesel are nearly the same, and both have a maximum of 15 parts per million of sulfur. But they’re made to different industry standards: ASTM D396 for heating oil and ASTM D975 for diesel. Those standards allow different ranges for how thick the fuel is, how well it lubricates engine parts, and the lowest temperature at which it can ignite. Heating oil may also contain biodiesel blends above what many engine makers warrant.
- EPA fuel rules are a separate question. The order doesn’t address EPA fuel requirements, which may need a separate waiver.
Why Not Remove the Tax From Clear Diesel Instead?
Some customers may wonder why the order focuses on dyed diesel. Federal fuel taxes are set by Congress, and a president can’t change them alone. Dyed diesel is already sold without the federal excise tax because it’s meant for off-road uses like farming and heating. The order works within that system. It asks Treasury to delay when the tax is paid on dyed diesel used on the road, and it directs how the IRS enforces the rules around its use.
We’re Watching This Closely
We’re following updates from Treasury, the IRS, the states we serve, and our industry groups. Rules like these often take time to sort out, and we want our customers to have clear, accurate information before they make any changes.
This article reflects what we know as of October 22. Reach out to your Sprague sales representative with any questions.
