On July 13, the IRS released Notice 2026-42, establishing the Section 45I Marginal Well Tax Credit (MWC) amount of $0.81 per Mcf for tax years beginning in calendar year 2026. This amount is derived from two calculation factors established by the IRS: the natural gas reference price of $2.20 per Mcf and the 2026 inflation adjustment factor of 1.6295. The 2026 MWC amount represents the third consecutive increase in credit since the zero-credit amount years of 2022 and 2023. The credit steadily climbed from $0.77 per Mcf in 2024 to $0.79 per Mcf in 2025, with the further increase in 2026 reflecting the most favorable rate yet for eligible marginal well operators.
To be eligible for the MWC, a taxpayer must have qualified natural gas production from a qualified marginal well located in the United States. “Marginal well” indicates that it is a low-production well, specifically a stripper-well property producing no more than an average of 15 barrel-equivalents per day per well for the calendar year. Under Section 45I, only the first 1,095 barrels or 6,000 Mcf produced during the year generally qualify for the credit. A single marginal well could produce a tax credit of up to approximately $5,320 and there is no limit on the number of wells on which a taxpayer may claim the credit.
Historically, the MWC was enacted to incentivize domestic operators to keep these low-production, narrow-margin wells in service, which are an important part of local economies and the U.S. energy supply. The credit provides an opportunity for qualified taxpayers to reduce their federal income tax liability dollar for dollar, pending certain limitations. To leverage the MWC, taxpayers with operating interest in marginal wells should evaluate their eligibility for the credit and consider the potential tax savings available in 2026.
Please contact a Schneider Downs tax advisor to further discuss eligibility and proper calculation of the credit.
The Schneider Downs Energy & Resources industry group has served oil and gas, mining and aggregates, forest products and alternative energy clients since 1980. Our specialists bring deep, sector-specific knowledge to proactive audit, tax and consulting work for producers and service providers of every size. To learn more, visit our Energy & Resources Industry Group page or contact us at [email protected] or schneiderdowns.com/sd-contact-us.
