What is the federal gas tax?

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In a Nutshell

Every gallon of gas you buy comes with federal and state gas taxes — and depending on where you live, possibly local taxes, too. Revenue from the federal fuel tax goes into a trust fund that pays for infrastructure projects like roads and bridges, but the fund’s tank has been running low in recent years.
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This article was fact-checked by our editors and reviewed by Tolla Tu, tax specialist with Credit Karma.

Every time you top off your vehicle at the pump, you’re paying federal and state gas taxes that are included in the price of every gallon of gasoline.

The federal tax, at 18.4 cents per gallon, is meant to help the federal government pay to build and fix things like highways and bridges. Every state adds its own tax to every gallon sold in the state, too.

However, the federal gas tax has been stuck in neutral since 1993, which is the last time the tax was increased. Here’s what you need to know about the federal gas tax and whether it may increase in the near future.

What is the federal gas tax?

The gasoline tax is an excise tax, which is a cost added to the purchase of specific goods and services. The federal government charges a tax of 18.4 cents on every gallon of gasoline and 24.4 cents on every gallon of diesel.

On top of that, you’ll also face location-based gas taxes. Every state has a gas tax, and local and municipal governments may apply additional taxes to gasoline.

The federal gas tax, introduced in the Revenue Act of 1932, was originally intended to help balance the national budget. In 1956, it morphed into a sort of user fee to pay for the nation’s roads and bridges. But what began as a 1 cent tax on motor fuels hasn’t grown much in the past century. The federal tax has only been raised a handful of times, and when accounting for inflation, its purchasing power has fallen in the past 25 years.

What do I pay for in a gallon of gasoline?

The cost you’ll pay at the pump varies, depending on multiple factors, including where you’re buying gas. But in 2018 the average gallon of gasoline cost $2.72 across the United States. According to the U.S. Energy Information Administration, here’s what that average per-gallon cost covered.

  • Distribution and marketing: $0.36
  • Refining costs and profits: $0.36
  • Federal and state taxes: $0.47
  • Crude oil: $1.53

Where do my gas tax dollars go?

As a driver, you’re supposed to directly benefit from the gas taxes you pay. Federal gas tax revenue is pumped into a Highway Trust Fund. The HTF funds federal and state infrastructure projects for roads, bridges and public transportation systems. State gas taxes go into state-managed funds, and each state decides how to use them.

State gas taxes

Every state imposes its own tax on gas. As of August 2018, drivers pay an average of 28.62 cents in state taxes on every gallon of gasoline, plus the federal fuel tax — adding up to an average 47.02 cents in total taxes on every gallon.

More than half of U.S. states have raised their gas taxes since 2013.

Though you may not pay attention to the taxes added to every gallon of gasoline, they add up over time. By filling up a 12-gallon gas tank, you’ll pay an average of $5.64 in tax. If you fill up your tank once a week, you’re paying about $293 in gas tax per year.

Other state taxes to know about

Will the federal gas tax increase?

The short answer? Maybe.

When the federal gas tax was last increased, in August 1993, the average gallon of gasoline cost $1.06 and the first “Jurassic Park” movie had just hatched in theaters.

While the federal gasoline tax hasn’t changed in over 25 years, construction and infrastructure-maintenance costs have greatly increased. State and local officials have estimated the cost of the nation’s infrastructure needs at $2 trillion.

While the Highway Trust Fund raised $41 billion in 2018, it still hasn’t been enough to cover projects in recent years, forcing Congress to transfer money from other sources to cover the shortfall. The HTF may become insolvent by 2021 if nothing is done to patch the gap, according to the Congressional Budget Office.

Fuel efficiency, which has steadily improved since 1975, has contributed to the shortfall.

Adding hybrid and electric cars further reduces gas tax revenues because they either use very little or no gasoline. As a response, some states have started charging a special registration fee for select vehicles to recoup some of the lost gas tax revenue.

The Trump administration has fielded the idea of increasing the federal gas tax, gaining both support and opposition in Washington from Republicans and Democrats. But it’s still unclear whether an increase will become a reality.

What you can do

An increase in the federal gas tax could affect anyone who drives a gas-powered vehicle. You can let your representatives in Washington know how you feel about the possibility of a higher federal gas tax.

Meanwhile, you can take steps to reduce the amount of gas you use — and therefore the gas taxes you pay.

The U.S. Department of Energy’s Office of Energy Efficiency and Renewable Energy suggests you …

  • Slow down and drive sensibly. Speeding, accelerating quickly and braking suddenly use more gas.
  • Maintain your car. Routine maintenance — like inflating your tires properly, changing the oil, tuning the engine and swapping out the air filter — will help your car use fuel more efficiently.
  • Plan and combine trips. A warm engine uses fuel more efficiently, so combining several errands into one trip can help keep gas costs low. You can also plan your work commute to avoid traffic, take advantage of carpools or ask your manager about telecommuting.
  • Choose a more efficient vehicle. If your work commute is long or you enjoy road trips, picking a car that gets good gas mileage could save you hundreds of dollars per year.
  • Lighten your load. If you’re carrying half your apartment in your trunk, clean it out. An extra 100 pounds in your vehicle can reduce the miles you get per gallon by 1%.

Bottom line

Gas taxes are intended to help maintain the country’s road system, but federal gas tax revenues have been falling short for a while. Some states have already raised their gas taxes to increase funding for road projects, and lawmakers in Washington have begun considering an increase to the federal gas tax.

If you drive a gas-powered vehicle in the U.S., you’re paying the federal gas tax and at least one state-level gas tax. Understanding how gas taxes work, what might happen to them in the future and how to drive more fuel-efficiently can help you manage the amount of gas tax you pay.

A tax specialist with Credit Karma, Tolla Tu has international experience in accounting, tax, finance, banking and consulting. She holds a bachelor’s degree in financial management from Beijing University of Chemical Technology, a master’s in corporate finance from Central University of Finance and Economics as well as a Master of Professional Accountancy from Montana State University. You can find her on LinkedIn.

About the author: Kim Porter is a writer and editor who has written for AARP the Magazine, Credit Karma, Reviewed.com, U.S. News & World Report, and more. Her favorite topics include maximizing credit card rewards and budgeting. Wh… Read more.