Temporary Penalty Relief for Dyed Diesel Fuel
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Temporary Penalty Relief for On‑Road Use of Dyed Diesel Fuel for Farming and Agricultural Purposes
Effective October 6, 2026, Illinois will temporarily suspend penalties for using dyed diesel fuel on highways for farming and agricultural purposes. The state made this move to keep agricultural operations running during a diesel fuel crunch. The relief period runs Oct. 6 through Dec. 31, 2026, with normal enforcement resuming Jan. 1, 2027.
Red-dyed diesel is standard diesel fuel marked with a red dye to indicate it is tax‑exempt and legally restricted to off‑road use such as farming, construction, generators and marine/rail equipment. It is chemically the same as clear on‑road diesel but sold without highway fuel taxes.
The Illinois Department of Revenue, working with Illinois State Police, said it will not impose penalties for the sale, purchase, possession or on-road use of dyed diesel in vehicles used for farming and agricultural purposes during that window, under Executive Order 2026-08.
The timing is crucial as the increased diesel prices land right in the middle of harvest and grain-hauling season. Now trucks hauling grain and other agricultural goods can use dyed diesel on state roads without facing state penalties through year’s end.
Farmers who use the relief must still keep detailed records, including license plate numbers, gallons used, fill-up dates and proof the fuel was used for agricultural transportation, such as invoices, bills of lading or grain tickets. Because dye residue can linger in tanks, users are also advised to document odometer readings at the end of the relief period and keep receipts for later fuel purchases. Records must be kept for four years. The Illinois Farm Bureau reminds members the temporary relief does not permanently eliminate fuel tax obligations, and Illinois’ penalty relief does not extend to other states.
IRS Supports Emergency Tax Relief on Dyed Diesel
In addition, the Internal Revenue Service today announced that, in response to the President’s Oct. 5, 2026, Executive Order, Emergency Tax Relief on Diesel Fuel, it will not impose a penalty when dyed diesel fuel is sold for use or used on highways nationwide. The relief is retroactive to Oct. 1, 2026, and will remain in effect until Dec. 31, 2026. Relief is available to any person that sells dyed diesel fuel or uses dyed diesel fuel for highway use.
The IRS expects to issue further guidance on the tax postponement and plans to explore ways to eliminate the obligation to pay any deferred amounts. The IRS cautioned that the relief only applies for federal tax purposes but has no effect on state fuel taxes. Many, but not all, states have provided similar state excise tax-related relief, however, and the IRS is encouraging taxpayers to check with relevant agencies in their states for the latest guidance on their relief.
If you have questions or concerns about how this affects your taxes, contact AJM&A at info@madonia.com