The Restoring Economic Diesel Fuel Act of 2026 eliminates federal penalties for the sale and use of dyed diesel fuel in taxable applications. Dyed fuel is currently marked with a red dye to indicate it is meant for off-road use only, such as farming or heating, and is taxed at a lower rate than on-road diesel; selling or using this cheaper fuel for regular vehicle use triggers significant penalties. This bill removes those penalties by striking the relevant penalty provisions from the Internal Revenue Code. The changes take effect for fuel sold or used after December 31, 2025. The legislation affects fuel distributors, businesses, and anyone currently subject to these penalties, and would reduce federal revenue from excise taxes on diesel fuel.
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