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Aircraft Club November 2024: Air transport excise tax rates for 2025
November 2024
In brief
What happened?
Effective January 1, 2025, federal excise tax rates will increase for taxable air transportation of persons.
Why is it relevant?
Failure to apply the federal excise tax rules properly may adversely impact the operator of a company aircraft.
Action to consider
In light of the impending rate increases for certain federal excise tax rates/fees, companies may want to review their use of business aircraft to confirm utilization of the appropriate tax rates/fees.
Observation: Previously set to expire on May 10, 2024, the Section 4261 tax imposed on the transportation of persons was extended until September 30, 2028, by the FAA Reauthorization Act of 2024, which was signed into law on May 16, 2024.
In detail
Air transportation excise taxes
Generally, noncommercial aviation is subject to a federal fuel excise tax under Section 4081. Commercial aviation is subject to federal excise taxes on the transportation of persons (Section 4261) or property (Section 4271) and subject to federal fuel excise tax (Section 4081) at a reduced fuel rate.
There are a number of different federal air transportation excise taxes that apply to the taxable transportation of persons under Section 4261, some of which are adjusted for inflation annually. The 2025 rates are as follows:
- Percentage tax. The 7.5% tax applicable to amounts paid for the taxable transportation of persons that begins and ends in the United States or in the 225-mile zone (i.e., portions of Canada and Mexico within 225 miles of the continental United States) remains unchanged from 2024.
- Domestic segment tax. The per passenger per segment (one take-off and one landing) tax applicable to taxable domestic flights (including within the 225-mile zone) has increased from $5.00 to $5.20.
- International facilities tax. The per passenger tax for the use of international travel facilities that applies to international flights that begin or end in the United States has increased from $22.20 to $22.90.
- Hawaii/Alaska flight tax. A reduced tax rate per passenger applicable to departures from Hawaii or Alaska to which the international facilities tax normally would apply has increased from $11.10 to $11.40. Other special rules apply to flights to and from Alaska and Hawaii.
Aviation fuel excise taxes
The federal fuel excise tax rates on aviation fuel are not adjusted for inflation and remain unchanged. Aviation gasoline generally is taxed at 19.4 cents per gallon, which includes the leaking underground storage tank fund tax (LUST). Kerosene generally is taxed at 24.4 cents per gallon; however, kerosene jet fuel is taxed at 21.9 cents per gallon for noncommercial aviation and 4.4 cents per gallon for commercial aviation (all rates including LUST).
Certain flights are not subject to federal fuel excise taxes, and other flights are subject only to the LUST at 0.1 cents per gallon. Fuel used in qualifying fractional aircraft ownership programs is subject to a fuel surtax of 14.1 cents per gallon. However, when this surtax applies, the 7.5% tax and other Section 4261 taxes do not apply.
Observation: Because the IRS and Federal Aviation Administration (FAA) define commercial and noncommercial transportation differently, the FAA may treat an aviation operation as commercial that the IRS treats as noncommercial.
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