I'm betting that it is the fuel sending unit. I just recently replaced mine.
My issue was inaccurate readings below 1/4 of a tank. Initially I think it was an issue near 1/8 of tank but the issue seem to get worse over time.
Yes, you can continue to drive it with a bad fuel sending unit but you will need to resort to filling up the tank and tracking the miles driven. I did that for a little over a year. My 4Runner gets very consistent fuel mileage so it was easy to do; however, this becomes a challenge when you let others use the vehicle. I was forced to do this method after running out of gas twice.
A few dealers quoted around ~$750 to do the job. I ended up doing it myself. Assuming you are okay working with rusty fasteners, the job is easy with one exception in my opinion. The big vent hose on top of the tank is a real pain in the a** to get off. That is the hardest part of the job from my perspective.
The parts needed for the repair can be had for around $100 - $150. You will need a new OEM fuel sending unit, retaining ring and a new gasket for retaining ring. Of course folks will debate to also replace the fuel pump "while you are in there." It's your call, but I chose not too.
Since you should be familiar with tracking miles driven, you should be able to leave 4-5 gallons safely in the tank without running out of fuel. It is not hard to lower the tank with 5 or less gallons still in it. Once you have the tank out, you can easily power the fuel pump in the tank to remove the remaining amount in it. Installation will be easier with minimal fuel left in the tank.
Once you have the tank out, go back and check the big vent hose above the tank to see if the o-rings have moved or have been damaged. You will need to make sure that the o-rings are in tact or you will end up with evap codes. Don't let this happen to you if you take on this job. You don't want to do the job twice or have to take it to the dealer later. If that happens, you will pay over half of what the job would have cost initially at the dealership on diagnosing and repairing the evap leak.
Btw, you can rent a tool to remove and install the retaining ring. I recommend renting one of those as opposed to trying to tighten the ring using one point of contact.
Related threads below.
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Erratic fuel gauge - bad fuel sending unit?
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