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Elective Pay (Direct Pay)

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Elective Pay (Direct Pay)

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Elective Pay

Elective pay (often referred to as direct pay) is a new mechanism that allows tax-exempt entities to take advantage of federal clean energy tax credits. Examples of eligible entities that can now receive payment for a portion of their clean energy investments include:

  • Tribal governments
  • Non-profits
  • School districts
  • Houses of worship
  • Rural electric co-operatives

In line with its mission, the Michigan Infrastructure Office Technical Assistance Center (TAC) is committed to providing technical assistance and educational resources for elective pay-eligible entities to help draw federal infrastructure money to Michigan's communities.

Learn more about how your organization can use elective pay to get reimbursed for the investments it's making by checking out our fact sheets and other resources below.

 Sign up for updates on what the TAC is doing to support eligible entities on elective pay.

 Email your questions on Elective Pay to mieog-michiganinfrastructure@michigan.gov.

MI Houses of Worship & Elective Pay Video

MI Houses of Worship & Elective Pay

Testimonials

"The [solar] project was $59,000, and we are looking at getting 30-40% back through the tax credits. Given that, it wasn’t a hard decision. Our vestry was really supportive. Applying for the direct pay was not difficult through the IRS website. They were very responsive regarding what we sent them, and whether it was appropriate, and whether they needed additional information. " - Wendy Heeden, Vestry Warden, St. Philip’s Episcopal Church, Beulah, MI

"The Inflation Reduction Act (IRA) expanded Investment Tax Credit (ITC) opportunities to include non-profit organizations like Michigan State University (MSU). As a public, research-intensive, land-grant university funded in part by the state of Michigan, such incentive opportunities are crucial. They enable us to enhance our campus infrastructure more cost-effectively, supporting outstanding education and world-class research." — Sherri Jett, Interim AVP of Real Estate & Capital Planning Director of Utilities, Michigan State University

"The Direct Pay provision is a powerful tool for local governments and nonprofits to rapidly grow, scale, and expand their clean energy investments. It’s a learning curve to figure out how to take advantage of this exciting provision but once we figured it out, it’s sure to bring significant savings and investments opportunities for our community.” — Missy Stults, PhD., Sustainability and Innovations Director, City of Ann Arbor

Fact sheets

Direct Pay 101

Elective Pay To-Do List
Introduction to elective pay (direct pay) webinar

Webinar - Intro to Elective Pay

Learn about Elective Pay in this recorded webinar from January 2025.

This presentation provides an overview of certain Inflation Reduction Act tax provisions for general information purposes only.

You can also view the PowerPoint slides from this presentation.

2024 tax filing deadlines and guidelines

Please choose your tax year from the menu on the left below to get the correct recommended pre-registration and filing deadline dates.

If your 2024 tax year was April 1, 2023 - March 31, 2024

Without extension With extension
IRS- recommended date for completing pre-registration Filing deadline IRS- recommended date for completing pre-registration Filing deadline after extension
April 15, 2024 August 15, 2024 October 15, 2024 February 15, 2025

If your 2024 tax year was July 1, 2023 - June 30, 2024

Without extension With extension
IRS- recommended date for completing pre-registration Filing deadline IRS- recommended date for completing pre-registration Filing deadline after extension
July 15, 2024 November 15, 2024 January 15, 2024 May 15, 2025

If your 2024 tax year was Oct. 1, 2023 - Sept. 30, 2024

Without extension With extension
IRS- recommended date for completing pre-registration Filing deadline IRS- recommended date for completing pre-registration Filing deadline after extension
October15, 2024 February 15, 2024 April 15, 2025 August 15, 2025

If your 2024 tax year was Jan. 1, 2024 - Dec. 31, 2024

Without extension With extension
IRS- recommended date for completing pre-registration Filing deadline IRS- recommended date for completing pre-registration Filing deadline after extension
January 15, 2025 May 15, 2025 July 15, 2025 November 15, 2025

Important updates

Important updates

Sign up for email updates

Office hours (recordings)

The following are recordings from previously-held office hours, where participants were offered a block of time to have specific questions answered. 

December 2024 direct pay office hours

January 2025 direct pay office hours

Resources on elective pay

Elective pay FAQ:

  • Elective Pay is a new mechanism created by the Inflation Reduction Act of 2022 that allows tax-exempt entities, such as local and Tribal governments, school districts, non-profits, rural co-ops, houses of worship, and others (“eligible entities”) access twelve federal clean energy tax credits for the first time. Claiming an elective payment on a federal tax return submitted by a tax-exempt entity is treated as an overpayment of federal taxes, and results in a payment in the form of a check sent to the entity by the IRS.

  • The IRS refers to organizations that are eligible for using Elective Pay as “applicable entities.” Applicable entities include tax-exempt organizations,* states, and political subdivisions such as local governments, Indian tribal governments and their subdivisions, Alaska Native Corporations, the Tennessee Valley Authority, rural electric cooperatives, U.S. territories and their political subdivisions, and agencies and instrumentalities of state, local, tribal, and U.S. territorial governments.** 

    *Tax-exempt organizations include any organization described in sections 501 through 530 that meets the requirements to be recognized as exempt from tax under those sections is eligible for elective pay. This includes, among others, all organizations described in section 501(c), such as public charities, private foundations, social welfare organizations, labor organizations, and business leagues. It also includes homeowners associations exempt under section 528.

     

    **Agencies and instrumentalities of state, local, tribal governments include water districts, school districts, economic development agencies, and public universities and hospitals that are agencies and instrumentalities of states or political subdivisions.


    For more information on eligibility, take a look at the IRS Elective Pay and Transferability FAQ here.
  • The TAC is supporting tax exempt entities in Michigan understand and file for Elective Pay. The TAC has opened an application window where eligible entities can apply for free accounting services to assist with filing for Elective Pay for projects placed in service in 2024. The TAC has prepared many resources, including fact sheets and webinars, and also hosts regular virtual office hours where eligible entities can get their questions answered and get connected to technical experts. Finally, the TAC anticipates creating additional programs in partnership with technical experts in order to amplify its resources and increase knowledge throughout the state. Sign up here to get the latest updates on what the TAC is doing to support eligible entities on Elective Pay.

  •  Eligible tax credits include:

    1. Energy Credit (48)

    2. Clean Electricity Investment Credit (48E)

    3. Renewable Electricity Production Credit (45)

    4. Clean Electricity Production Credit (45Y)

    5. Commercial Clean Vehicle Credit (45W) 

    6. Zero-emission Nuclear Power Production Credit (45U) 

    7. Advanced Manufacturing Production Credit (45X) 

    8. Clean Hydrogen Production Credit (45V) 

    9. Clean Fuel Production Credit (45Z) 

    10. Carbon Oxide Sequestration Credit (45Q) 

    11. Credit for Alternative Fuel Vehicle Refueling / Recharging Property (30C) 

    12. Qualifying Advanced Energy Project Credit (48C)

    Take a look at this IRS Fact Sheet for more details.

     
  • Some examples of the most common types of projects that are eligible for using Elective Pay include renewable energy projects such as solar, wind, or geothermal; energy storage projects; electric vehicle purchases and charging infrastructure installations, among others. To see if your project qualifies, review this IRS Fact Sheet for more details on the individual tax credits or use the Lawyers for Good Government Clean Energy Tax Navigator here.
  • Once a project is placed in service, a project must be pre-registered with the IRS through a portal on their website, which the IRS recommends doing 120 days prior to the relevant filing deadline for your organization’s tax year. (See the IRS’s Pre-Filing Registration Tool Guidebook that provides detailed instructions on using the pre-registration portal.) You will then receive pre-registration numbers for each of your projects, which you will use to complete a tax return by the relevant tax year deadline. The IRS has approximated it will take 45 days after a return is filed to receive a check for the elective payment.
  • Elective Pay is treated as an overpayment of taxes. So, when your organization pre-registers its project and later files a federal tax return and makes an elective payment, the IRS will send a check to your organization for the elective payment amount.
  • The amount of funding for each project is dependent on the applicable tax credit selected for your project. This IRS Fact Sheet details the credit amount for each eligible tax credit. There are additional “bonus credits” that can be stacked on top of these credits to increase the credit amount. For more information on bonus credits, see Question 15 of the IRS’s Elective Pay and Transferability FAQ here.
  • Elective Pay is not up-front capital support for a project. Projects must be placed in service in order to be eligible for Elective Pay. Once a project is placed in service, a project must be pre-registered with the IRS on their website, and a tax return must be filed by the relevant tax year deadline. The IRS has approximated it will take 45 days after a return is filed to receive a check for the elective payment.
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