Fact Sheet Inflation Reduction Act Clean Energy Opportunity: Direct Pay for Nonprofits and Tax-Exempt Entities

This fact sheet from the Environmental and Energy Study Institute explains how the Inflation Reduction Act of 2022 allows tax-exempt entities, such as nonprofits and local governments, to access clean energy tax credits through a "direct pay" (or "elective pay") mechanism.

• The Inflation Reduction Act of 2022 (IRA) introduced "direct pay" (also known as "elective pay"), which allows tax-exempt entities to receive direct payments from the Internal Revenue Service (IRS) instead of tax credits for clean energy investments through 2033.
• Eligible entities for direct pay include nonprofits, state and local governments and their agencies, school districts, churches, tribal governments, rural electric cooperatives, and municipal utilities.
• Tax-exempt entities can monetize 12 different tax credits, including the Investment Tax Credit (ITC) and Clean Electricity Investment Tax Credit, which offer a 30% base credit for battery storage, ground-source heat pump, and solar projects. Additional 10-percentage-point bonuses are available for projects using "domestic content" or located in "energy communities," and a further 20-percentage-point bonus is available via the U.S. Department of Energy's Low-Income Community (LIC) Bonus Credit Program.
• Other qualifying credits include the Commercial Clean Vehicle Credit, which provides up to $40,000 (30% credit) for replacing diesel- or gas-powered vehicles with electric commercial vehicles (or up to $7,500 for vehicles under 14,000 pounds); the Alternative Fuel Infrastructure Tax Credit, offering a 30% credit up to $100,000 per unit for refueling equipment and EV charging stations; and the Commercial Buildings Energy Efficiency Tax Deduction for improvements resulting in at least 25% energy savings.
• The process for accessing direct pay credits involves placing the project into service, pre-registering with the IRS, filing specific forms (IRS Forms 3468 and 3800), and filing an annual tax return (990 T-form). The entire process can take between four and 18 months.

APA

Environmental and Energy Study Institute (n.d.). Fact Sheet Inflation Reduction Act Clean Energy Opportunity: Direct Pay for Nonprofits and Tax-Exempt Entities. https://www.eesi.org/files/FactSheet_Direct_Pay_Nonprofits.pdf

Chicago

Environmental and Energy Study Institute. Fact Sheet Inflation Reduction Act Clean Energy Opportunity: Direct Pay for Nonprofits and Tax-Exempt Entities. n.d. https://www.eesi.org/files/FactSheet_Direct_Pay_Nonprofits.pdf.

Wikipedia

{{cite report |author=Environmental and Energy Study Institute |title=Fact Sheet Inflation Reduction Act Clean Energy Opportunity: Direct Pay for Nonprofits and Tax-Exempt Entities |url=https://www.eesi.org/files/FactSheet_Direct_Pay_Nonprofits.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{environmentalandenergystudyinstitutendfact, author = {{Environmental and Energy Study Institute}}, title = {{Fact Sheet Inflation Reduction Act Clean Energy Opportunity: Direct Pay for Nonprofits and Tax-Exempt Entities}}, institution = {Environmental and Energy Study Institute}, url = {https://www.eesi.org/files/FactSheet_Direct_Pay_Nonprofits.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }