Here is a sentence your board will not believe the first time they hear it: the IRS will send your tax-exempt organization a check worth up to 30 percent of what it spends on solar panels, battery storage, or EV chargers — even though your organization owes no federal income tax at all. No tax liability to offset, no complicated partnership flip, no selling credits at a discount to a bank. You build the project, file one extra tax form, and the Treasury refunds the credit value in cash.
The mechanism is called elective pay, sometimes called direct pay, and it lives in Section 6417 of the tax code. Congress created it in the Inflation Reduction Act of 2022 as the first way for nonprofits, churches, schools, and local governments to directly benefit from clean energy tax credits. The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, kept the mechanism intact but rewrote the deadlines and added new procurement restrictions — so a guide written in 2024 will now steer you wrong. Here is how elective pay works today, who qualifies, which credits still survive, and the exact filing sequence that turns your project into a refund.
One terminology warning first, straight from the IRS: "direct pay" here has nothing to do with IRS Direct Pay, the agency's online bank-account payment method for paying taxes you owe. Elective pay is money flowing the other direction — from the Treasury to you.
Who Qualifies: Applicable Entities
Elective pay is only available to what the statute calls applicable entities. If your organization is on this list, you can make the election:
- Tax-exempt organizations described in Sections 501 through 530 — including 501(c)(3) nonprofits, churches and houses of worship, private and public schools, universities, and nonprofit hospitals
- States, cities, counties, and their political subdivisions, including public school districts, municipal utilities, and public housing authorities
- Indian tribal governments and Alaska Native corporations
- Rural electric cooperatives and the Tennessee Valley Authority
- U.S. territories and their political subdivisions
Two common structures are conspicuously absent: partnerships and S corporations are not applicable entities, even when every partner is a nonprofit or a government. There is a narrow carve-out letting partnerships elect direct pay for just three credits — carbon capture (45Q), clean hydrogen (45V), and advanced manufacturing (45X) — but a typical solar project owned through a partnership cannot use elective pay. If your project is currently held in a partnership for other reasons, talk to your tax adviser about ownership structure before you count on a refund.
Which Credits You Can Turn Into Cash
Eleven clean energy credits are eligible for the election, plus the CHIPS Act's advanced-manufacturing credit. The ones most applicable entities actually claim are:
| Credit | What it rewards | Typical value |
|---|---|---|
| Section 48E, Clean Electricity Investment Credit | Solar, wind, geothermal, battery storage, and other zero-emission generation you own | 30% of project cost |
| Section 45Y, Clean Electricity Production Credit | Electricity your facility generates and sells or uses over 10 years | Per-kilowatt-hour payment |
| Section 30C, Alternative Fuel Refueling Property | EV chargers and clean-fuel pumps, including fleet depots | Up to 30% of cost |
| Section 45U, Zero-Emission Nuclear | Existing nuclear plants still operating | Per-kilowatt-hour payment |
| Section 45Q, Carbon Capture | Captured and stored or utilized carbon oxides | Per-metric-ton payment |
| Section 45Z, Clean Fuel Production | Low-emission transportation fuels | Per-gallon payment |
The headline "30 percent" comes with fine print. The base credit is only 6 percent of costs; you unlock the full 30 percent by meeting prevailing-wage and apprenticeship requirements — paying laborers Davis-Bacon wages and ensuring registered apprentices perform a share of construction hours. Projects under 1 megawatt of output are exempt from those rules and get the full rate automatically, which covers most rooftop solar on a school, church, or town hall. Miss the wage paperwork on a larger project and your 30 percent credit collapses to 6 percent, so treat payroll documentation as part of the project, not an afterthought.
On top of the base rate, bonus adders can stack: 10 percentage points for domestic content, 10 for projects in energy communities, and 10 to 20 for projects serving low-income communities. A well-sited solar project can legitimately reach 50 percent or more of its cost back as a refund — which is why getting the eligibility details right matters so much.
What OBBBA Changed — Read This Before You Plan
OBBBA preserved elective pay as a mechanism: entities without tax liability can still receive cash instead of credits. But it shortened timelines and added restrictions that change which projects pencil out:
Wind and solar face a hard 2027 wall. The 45Y and 48E credits for wind and solar facilities disappear for projects placed in service after December 31, 2027 — unless construction began on or before July 4, 2026. A project that starts construction after that July date must be finished and operating by the end of 2027 to earn anything. If your solar timeline slips into 2028, there is no credit left to elect pay on.
Other technologies keep the long runway. Geothermal, hydropower, nuclear, and standalone battery storage were left on roughly the original schedule: projects that begin construction before 2034 can still earn full credits. Storage paired with a solar array follows the solar deadline, while standalone storage does not — a distinction worth confirming with counsel on mixed projects.
Several credits are already gone. The EV credits for new, used, and commercial vehicles ended after September 30, 2025. The residential energy credits ended after 2025. The clean hydrogen credit (45V) terminates after 2027. Do not model a project around a credit that has already sunset.
New prohibited-foreign-entity rules apply to 2026 construction starts. Projects that begin construction in 2026 or later must comply with OBBBA's foreign-entity-of-concern restrictions: too much equipment, components, or critical minerals from covered nations, and the project loses the credit — and with it, elective pay. Get supply-chain and country-of-origin documentation from your equipment vendors in writing before you sign, not when the IRS asks.
The domestic-content phaseout still bites large projects. For the production and investment credits, facilities of 1 megawatt or more that miss the domestic-content threshold see their elective payment shrink based on when construction began: 100 percent for pre-2024 starts, 90 percent for 2024, 85 percent for 2025, and zero after 2025. Transition relief lets projects that began construction before January 1, 2027 claim a statutory exception through an attestation plus recordkeeping — but "attestation plus recordkeeping" means you need the vendor certifications filed before you claim, not reconstructed later.
The Three Steps to Your Refund
Elective pay is a filing process, not a grant application. There is no award letter and no discretionary approval — if you are eligible, register, and file correctly, the payment follows. The sequence matters:
Step 1: Build the project and document as you go
Place the property in service in the tax year you intend to claim. From day one, keep the records each requirement above demands: payroll records proving prevailing wages and apprentice hours (for projects over 1 megawatt), manufacturer certifications supporting domestic content, energy-community or low-income eligibility evidence, and for 2026-and-later construction starts, the foreign-entity supply-chain documentation. The registration portal asks you to confirm these; the return you file later must be able to prove them.
Step 2: Pre-register with the IRS before you file
Every elective pay claim requires a registration number from the IRS Energy Credits Online portal, and the election is invalid without one — this is the single most common reason claims fail. Key rules:
- Register no earlier than the start of the tax year in which the property is placed in service.
- The IRS recommends submitting at least 120 days before you plan to file, and warns that its own review can take up to 120 days. Registering the week before your filing deadline is planning to fail.
- You receive one registration number per property, and each number goes on the tax return that claims that property's credit.
Your organization's own staff can complete the registration, or your tax adviser can do it under a power of attorney. Either way, calendar it as its own deadline rather than folding it into tax-season prep.
Step 3: File Form 990-T and claim the payment
Applicable entities claim elective pay on Form 990-T, the exempt-organization business income tax return — even if you have no unrelated business income and have never filed that form before. Filing your regular Form 990 does not make the election. Attach the source credit form for each credit claimed plus Form 3800 for the general business credit, include every registration number, and file by the return due date including extensions.
If you already missed the extension deadline, there is a lifeline: Revenue Procedure 2024-39 grants certain applicable entities an automatic six-month extension to file the 990-T for elective pay purposes even without a timely Form 8868. It is relief worth knowing about, not a planning strategy — file on time and you never need it.
Once filed, the IRS treats your elected credit amount as a tax payment, counts it as an overpayment since you owe no tax, and refunds it. Expect processing to take months, not weeks, and budget your project cash flow accordingly.
Mistakes That Kill an Elective Pay Claim
Almost every failed claim traces back to one of these errors:
- No valid registration number on the return. The election is deemed ineligible without it. This is a paperwork failure, not a judgment call — there is no appeal from never registering.
- Filing Form 990 instead of Form 990-T. Your annual information return cannot carry the election. Organizations that have never touched the 990-T need to set up the filing from scratch.
- Missing the return due date. The election must be made on a timely filed return (extensions count). A late original return generally means no election for that year.
- Prevailing-wage paperwork gaps on large projects. The wage rules are documented-compliance rules: without certified payroll records, you cannot prove you paid correctly, and the credit drops from 30 percent to 6 percent.
- Assuming a partnership can elect. It generally cannot. Confirm the legal owner of the project is itself an applicable entity.
- Tainted equipment under the new foreign-entity rules. One shipment of covered components can disqualify a 2026-start project. Vendor certifications belong in the file before installation.
- Modeling around a dead credit. EV chargers claimed under 30C have their own OBBBA-shortened timeline distinct from solar — verify each credit's current sunset before you break ground.
Keep Project Records Your Auditor Will Love
Notice how every step above ends in documentation: payroll certifications, vendor origin letters, registration numbers, placed-in-service dates, cost breakdowns by credit category. Elective pay rewards organizations that already run disciplined project books, because the IRS cannot pay what you cannot substantiate. Set up a separate cost center for each energy property the day the project starts, log every invoice against the credit category it supports, and file compliance documents alongside the transactions they justify — not in someone's inbox.
That habit pays twice: the same records that support your 990-T also answer the questions a grant funder, a bond trustee, or your own board will ask about where the money went. And when the refund lands months later, reconciling it against the project ledger closes the loop cleanly instead of leaving a mystery deposit for next year's treasurer. If your current tools make that kind of audit trail painful, the documentation shows how plain-text accounting keeps every posting transparent and version-controlled, and the Fava dashboards turn the same ledger into reports a non-accountant board member can actually read.
Keep Your Energy Project Books Audit-Ready
Claiming elective pay is ultimately a bookkeeping exercise with a six-figure payoff: register on time, document every requirement, and file the right form. Beancount.io provides plain-text accounting that gives you complete transparency and control over your project financial data — no black boxes, no vendor lock-in. Get started for free and see why developers and finance professionals are switching to plain-text accounting.
