The Inflation Reduction Act introduced tax credits referred to as elective pay or often called direct pay, which allows tax-exempt and governmental entities to receive a payment equal to the full value of tax credits for building qualifying clean energy projects. The new provisions will enable states, local governments, Tribes, territories, and nonprofits to actively invest in building a clean energy economy, help save residents money, and improve overall public health. Elective pay allows entities to claim these credits if they meet the requirements and benefit from both direct pay and the underlying of tax credit, even if they do not owe federal income tax. Applicable entities can use direct pay for 12 of the Inflation Reduction Act’s tax credits, including purchasing electric vehicles for local fleet, ambulances, natural gas buses, and sustainable aviation fuels; generating clean electricity through solar, wind, and battery storage projects; building community solar projects that bring clean energy to neighborhood families, and installing electric vehicle (EV) charging infrastructure. See a full list of applicable tax credits for direct pay.

 

For more information about using direct pay for local governments, click here.