Elective Pay Overview
Elective pay, also referred to as ‘direct pay’ is a provision in the Inflation Reduction Act that enables tax-exempt organizations, states, and government organizations to directly receive monetary payment for the investment tax credit for eligible solar installations and energy storage projects.
An organization that meets all the requirements can file an annual tax return with the IRS to claim elective pay and be eligible for a payment in lieu of the tax credit. Since the amount of the credit is treated as a payment of tax, any overpayment results in a refund. This article provides information and links to resources to help organizations navigate this innovative provision.
Preparing for Elective Pay
The Internal Revenue Service (IRS) released its final guidance for this credit delivery mechanism in March 2024. This guidance removes any temporary regulations and enacts the final rules. Organizations that do not have an annual tax filing obligation can determine eligibility using the IRS Elective Pay FAQ. If eligible, gather information that will be needed for filing, including:
- Solar project details including facility output and date placed in service
- Credit intended to be earned for each property
- Name of the person authorized to attest to the information
Navigating the Elective Pay Process
- IRS’s Pre-Filing Registration tool: Use this tool to register the intention to make an elective payment election. This is a required step.
- IRS User Guide: Reference this helpful resource when using the pre-filing tool.
When to Complete the Pre-Filing Registration Process
It is important to allow time for the IRS to review your submission and provide the necessary registration number(s). You may complete the pre-filing registration process as soon as you have all the information required, including the date your applicable credit property was placed in service.
Conclusion
The introduction of elective pay under the Inflation Reduction Act marks a significant step forward for tax-exempt organizations, states and government entities to take advantage of renewable energy incentives in their transition to sustainable energy.
Disclaimer: The information is strictly provided as a convenience to our customers. Solect/Pattern does not represent or warrant the accuracy of information provided by these external websites. Solect/Pattern does not provide legal, tax or investment advice. Always consult your tax, financial and legal professionals.
March 6, 2024