The bill amends the Internal Revenue Code to reduce the federal fuel excise tax on fuel removed, entered, or sold in any month when the national average retail price of gasoline exceeds $3.99 per gallon. The reduction scales at one cent for every cent the national average exceeds $3.99, but cannot reduce the tax below zero.
To keep programs funded, the Secretary of the Treasury must transfer from the general fund amounts equal to the revenue lost by the Highway Trust Fund and the Leaking Underground Storage Tank Trust Fund.
Concurrently, the bill suspends several oil-and-gas tax preferences during those same months: amortization or immediate treatment of intangible drilling costs under section 263(c), the enhanced oil recovery credit under section 43, and the marginal well production credit under section 45I. The substantive provisions for credits and deductions apply to taxable years beginning after December 31, 2025.
The measure blends a consumer-facing tax cut with offsetting suspensions of producer benefits and explicit general-fund backfills for trust-fund shortfalls.
At a Glance
What It Does
The bill creates a temporary, price-triggered reduction in the federal motor fuels excise tax tied to the national average retail gasoline price: when the price is above $3.99/gal, the tax is reduced by 1¢ for each cent above that threshold, subject to a floor of zero. It also prohibits selected oil-and-gas tax deductions and credits for costs or production that occur in months covered by the price-triggered suspension.
Who It Affects
Motor-fuel removers, importers, and distributors who collect or owe the excise tax; beneficiaries of the Highway Trust Fund and Leaking Underground Storage Tank Trust Fund; oil-and-gas producers and service companies that currently claim intangible drilling-cost treatment, enhanced oil recovery credits, or marginal well credits; and the Treasury because of the required general-fund transfers.
Why It Matters
The bill ties federal fuel-tax policy directly to gasoline prices, changing both revenue volatility and the incentive environment for producers. It protects trust-fund receipts by mandating general-fund transfers, but shifts the fiscal cost to the Treasury and removes certain production incentives during high-price months — a mix of short-term relief and targeted tax-policy leverage.
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What This Bill Actually Does
The bill inserts a new subsection into section 4081 of the Internal Revenue Code that modifies how the federal excise tax on gasoline is applied when retail prices rise. Rather than a fixed, periodic holiday or a temporary suspension for a set time, the adjustment is automatic and formulaic: for any month the national average retail price of gasoline tops $3.99 per gallon, the statutory tax rate is reduced by one cent for every cent of that excess.
The provision explicitly prevents the rate from going below zero, so the cut cannot create a negative tax.
Because excise receipts fund highway construction and leaking-tank cleanup programs, the bill requires the Treasury to make up the shortfall from the general fund. It directs administrative treatment so that amounts transferred are credited to the Highway Trust Fund and the Leaking Underground Storage Tank Trust Fund in the same way the taxes would have been, preserving accounting and distribution rules for those funds.To offset the policy choice of delivering price-linked relief at the pump, the bill suspends certain upstream tax benefits during months when the pump-price trigger is in effect.
It disallows treatment under the intangible drilling-cost rule, bars the enhanced oil recovery credit for costs in those months, and excludes production in those months from the marginal well credit. Those suspensions take effect for taxable years that begin after December 31, 2025, which means corporate and partnership filings covering those years must reflect the changed availability of deductions and credits.Operationally, the statute places responsibility on existing tax and treasury machinery: the Secretary of the Treasury implements transfers and the IRS interprets the credit/deduction suspensions when processing returns.
The law is structured so the fuel-tax adjustment and the tax-preference suspensions are linked by the same monthly price test, which creates simultaneous downstream relief and upstream restraint whenever national pump prices climb above the specified threshold.
The Five Things You Need to Know
The bill reduces the section 4081 federal fuel excise tax by 1 cent for each cent the national average gasoline price exceeds $3.99 per gallon in a month — but never below zero.
The Secretary of the Treasury must transfer from the general fund to the Highway Trust Fund and the Leaking Underground Storage Tank Trust Fund amounts equal to the excise-tax revenue lost because of the suspension.
Section 263(c) treatment for intangible drilling costs is disallowed for costs incurred during any month covered by the price-triggered suspension.
The enhanced oil recovery credit (section 43) and the marginal well production credit (section 45I) are not available for costs or production during months when the national average gasoline price exceeds $3.99/gal.
The tax-preference suspensions apply to taxable years beginning after December 31, 2025, while the excise-tax adjustment operates on a month-by-month price trigger.
Section-by-Section Breakdown
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Price-triggered partial suspension of fuel excise tax
Adds a new subsection to IRC section 4081 that ties excise-tax reduction to the national average retail gasoline price. For any month where the price exceeds $3.99 per gallon, the excise tax imposed by subsection (a) is reduced by one cent per cent of excess price, with an explicit floor preventing the tax from going below zero. Practically, this creates an automatic, formulaic relief mechanism rather than a discretionary or one-time tax holiday.
General-fund backfill for Highway and LUST Trust Funds
Requires the Treasury to transfer from the general fund amounts equal to the revenue that would otherwise have been credited to the Highway Trust Fund (section 9503) and the Leaking Underground Storage Tank Trust Fund (section 9508). The bill specifies how transferred amounts should be treated for accounting purposes so they slot into existing distribution rules for those funds, meaning program beneficiaries should see no change in credited receipts even when excise receipts are reduced.
Suspend intangible drilling-cost treatment during disqualified months
Adds a sentence to section 263(c) stating that the special treatment for intangible drilling costs does not apply to costs incurred in months covered by the price-triggered suspension. This removes a commonly used tax deferral/expensing mechanism for certain drilling expenditures, effectively increasing taxable income for affected companies in those months.
Temporarily bar enhanced oil recovery credit
Appends a new subsection to section 43 prohibiting the enhanced oil recovery (EOR) credit for costs paid or incurred during any month described in the new section 4081(f). The provision eliminates a targeted production tax incentive during periods when the bill is providing consumer-facing relief at the pump.
Exclude production during disqualified months from marginal well credit
Modifies the marginal well credit statute to exclude production during months covered by the excise-tax trigger, denying that credit when pump prices are above the threshold. The change directly reduces the availability of a tax credit aimed at small or marginal producers at the same time the bill reduces downstream costs for consumers.
Tax-preference suspensions apply to taxable years beginning after 2025
States that the amendments affecting deductions and credits apply to taxable years beginning after December 31, 2025. The excise-tax suspension is framed as a month-by-month rule; the effective-date clause controls how corporate and passthrough returns must treat the suspended preferences for reporting and compliance purposes.
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Explore Finance in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Retail gasoline consumers: If fuel distributors pass along the reduction, end-users will see lower per-gallon excise components when the national average price exceeds $3.99 — the bill creates an in-law mechanism for temporary pump relief.
- Highway and LUST program administrators: The bill preserves nominal cash flow to the Highway Trust Fund and the Leaking Underground Storage Tank Trust Fund by mandating general-fund transfers so programs funded from those accounts should receive credited receipts despite lower excise collections.
- Large oil-and-gas consumers and downstream users: Lower excise tax at retail could reduce operating costs for businesses that purchase large quantities of gasoline for fleets or production, subject to pass-through behavior by sellers.
Who Bears the Cost
- The general fund / Treasury: Congress requires transfers from the general fund to replace trust-fund receipts, shifting the fiscal burden to the Treasury and, by extension, to taxpayers and budget priorities.
- Oil-and-gas producers and service companies: Companies that rely on intangible drilling-cost treatment, the enhanced oil recovery credit, or the marginal well credit will lose those tax benefits during disqualified months, increasing their tax liabilities and possibly affecting investment timing.
- Tax administrators and filing taxpayers: The IRS and corporate/passthrough taxpayers face additional compliance and record-keeping complexity because credits and deductions must be tracked and excluded for particular months within taxable years, complicating return preparation and audit scopes.
Key Issues
The Core Tension
The bill attempts to deliver consumer relief at the pump while preserving program funding and discouraging additional upstream production incentives; the central trade-off is between offering immediate price relief funded from the general fund (which dilutes user-fee discipline and increases budget exposure) and maintaining production incentives but leaving consumers exposed to high prices. The statute resolves this by cutting excise receipts while simultaneously suspending producer tax breaks and backfilling trust funds — but that resolution shifts fiscal cost and administrative complexity rather than eliminating the underlying policy conflict.
The bill links a downstream fuel-tax reduction directly to an observable national price, but the economic incidence of excise-tax reductions is uncertain: whether refiners, distributors, or retailers adjust margins or pass savings to consumers will determine the real-world benefit. The statutory requirement to make general-fund transfers preserves trust-fund accounting but creates a recurring budgetary exposure that grows with the frequency and magnitude of high-price months.
Those transfers are not accompanied by an offsetting revenue source in the bill, so they increase general-fund outlays and substitute broad-based fiscal cost for user-fee financing.
The suspension of upstream tax preferences during triggered months targets producer incentives but raises practical implementation questions. Tying deduction and credit availability to a monthly national pump-price series requires clear guidance on timing (how months intersect with taxable-year reporting), allocation rules for costs that span months, and coordination where partners and passthrough entities have differing tax-year definitions.
The effective-date wording (taxable years beginning after December 31, 2025) could create mismatches for taxpayers whose fiscal years do not align with calendar years, necessitating transitional guidance from the Treasury and IRS.
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