Big Oil Windfall Profits Tax Act
- Sponsor
- Rep. Khanna, Ro [D-CA-17]
- Committees
- Ways and Means Committee (primary)
- Last action
- Mar 17, 2026
Bottom line
The bill taxes large oil companies' 'windfall' profits during periods of high crude oil prices and returns the collected revenue directly to individual consumers as gasoline price rebates.
What it actually does
This bill establishes a new 50% excise tax on the difference between the current average price of Brent crude oil and its inflation-adjusted average price from 2025, targeting large crude oil extractors and importers. The revenue generated from this 'windfall profits tax' is then deposited into a dedicated fund and subsequently rebated to eligible individual taxpayers as a refundable credit, with a phase-out for higher incomes.
Proponents argue
Proponents argue that this legislation protects consumers from price gouging by oil companies during periods of significantly elevated crude oil prices, ensuring that excessive profits are returned to the public rather than retained by corporations. They contend it directly addresses inflationary pressures and provides tangible financial relief to households struggling with high gasoline costs.
Opponents contend
Opponents would likely argue that imposing a windfall profits tax discourages domestic oil production and investment, potentially leading to reduced supply, increased reliance on foreign oil, and even higher prices in the long run. They might also contend that such government intervention distorts free markets and could harm the nation's energy security.
The bill is relatively concise and its core mechanisms are clearly outlined, making it accessible for an informed reader to understand its primary impacts and evaluate its provisions.
Section 2(a), new Chapter 56, Section 5896
Imposition of Windfall Profits Excise Tax on Crude Oil
This provision establishes a new excise tax on crude oil, levied on each barrel extracted or imported by a 'covered taxpayer.' The tax rate is 50% of the amount by which the average price of Brent crude oil for a calendar quarter exceeds its average price during 2025, with an adjustment for inflation in subsequent years. This aims to capture profits deemed 'excessive' when oil prices are high.
Supporters argue
Supporters argue this tax targets extraordinary profits earned by oil companies when global crude oil prices are significantly elevated, ensuring that a portion of these 'windfall' gains are redirected to the public rather than retained by corporations.
Critics contend
Critics would contend that this tax could disincentivize domestic oil production and investment, potentially leading to reduced supply, increased reliance on foreign oil, and higher energy costs for consumers in the long term.
Tradeoffs
The provision balances the desire to capture 'excess' profits from high oil prices with concerns about potential negative impacts on future energy supply, investment, and the competitiveness of the domestic oil industry.
Section 2(a), new Chapter 56, Section 5897(a)(1)
Definition of Large Oil Producers/Importers Subject to Tax
This section defines a 'covered taxpayer' as any entity that, in calendar year 2025 or the current calendar quarter, extracted and imported an average of more than 300,000 barrels of taxable crude oil per day. It also includes aggregation rules, treating related entities as a single person for the purpose of meeting this threshold.
Section 3(a), new Section 6436 of the Internal Revenue Code
Establishment of Gasoline Price Rebates for Individuals
This section establishes a new refundable tax credit for eligible individuals, termed the 'gasoline price rebate amount.' The Secretary of the Treasury determines the amount based on the number of eligible individuals and the revenues collected from the windfall profits tax. Joint filers receive 150% of the standard rebate. The credit phases out for individuals with adjusted gross income exceeding $75,000 ($112,500 for heads of household, $150,000 for joint filers).
Section 4(a), new Section 9512 of the Internal Revenue Code
Establishment of Dedicated Fund for Windfall Tax Revenues
This section establishes the 'Protect Consumers from Gas Hikes Fund' within the U.S. Treasury. Amounts equivalent to the taxes collected under the new windfall profits tax are appropriated to this fund. The fund's sole purpose is to pay for the gasoline price rebates provided to individual taxpayers, creating a direct link between the tax collection and the consumer relief.
For calendar quarters beginning after 2026, the 2025 average Brent crude oil price baseline used to calculate the tax will be adjusted for inflation. This adjustment uses the cost-of-living adjustment under section 1(f)(3) of the Internal Revenue Code, with '2025' substituted for '2016' as the base year.
Section 2(a), new Chapter 56, Section 5896(b)(2)
Why it matters:This is standard legislative practice for incorporating technical tax adjustments to maintain the real value of monetary thresholds over time, rather than being an attempt to obscure the provision.
Case for: Supporters would argue that this adjustment is crucial to ensure the tax remains relevant and fair over time, preventing inflation from eroding the real value of the 2025 baseline price and ensuring the tax continues to target genuine 'windfall' profits.
Case against: Critics might argue that complex inflation adjustments can make the tax less predictable for businesses, potentially hindering long-term planning and investment in the energy sector due to uncertainty in future tax liabilities.
Estimated impact: Ensures the tax continues to target real 'windfall' profits above an inflation-adjusted baseline, potentially increasing tax revenue over time compared to a fixed baseline and maintaining the intended burden on oil companies.
For any calendar quarter ending before July 1, 2026, the windfall profits tax imposed by the bill will not be due before September 30, 2026. This provides a grace period for the initial tax payments.
Section 2(c)(2)
Why it matters:This is standard legislative practice to provide a reasonable grace period for new tax implementations, allowing affected entities time to set up their accounting and compliance systems. It is not intended to be evasive.
Case for: Proponents would argue that this provision provides oil companies with adequate time to establish their accounting and compliance systems for the new tax, ensuring a smoother transition and reducing initial administrative burdens on businesses and the IRS.
Case against: No strong case against this specific provision, as it is an administrative accommodation. Some might argue it slightly delays the initial collection of revenue intended for consumer rebates, but this is a minor point.
Estimated impact: Delays the initial collection of windfall profits tax revenue for the first two quarters of 2026 until the third quarter of 2026, impacting the immediate cash flow into the rebate fund.
To receive the gasoline price rebate, individual taxpayers must include a valid Social Security Number (SSN) issued by the Social Security Administration on or before the due date for filing their tax return. Special rules apply for joint returns and members of the armed forces, and omission of an SSN is treated as a mathematical or clerical error.
Section 3(a), new Section 6436(d)(2)
Why it matters:This is standard legislative practice for tax credit eligibility and anti-fraud measures, ensuring that federal benefits are distributed to verifiable individuals. It is not an attempt to hide the requirement.
Case for: Supporters would argue this provision is essential for preventing fraud and ensuring that rebates are only distributed to eligible individuals with verifiable identities, thereby maintaining the integrity and public trust in the program.
Case against: Critics might argue that strict SSN requirements could inadvertently exclude some otherwise eligible individuals, particularly those in mixed-status families or those unfamiliar with complex tax filing requirements, potentially reducing the reach of the intended relief.
Estimated impact: Ensures accurate and secure distribution of rebates, potentially excluding a small percentage of otherwise eligible individuals who lack or fail to provide a valid SSN, thereby slightly reducing the total outlay for rebates.