Direct pay, also referred to as “elective pay”, is a mechanism created through federal law that allows entities with no federal tax liability (e.g. municipalities, schools, nonprofits, and tribal nations, among others) to receive federal tax credits for eligible clean energy investments. In the same way that individuals and private companies have been able to claim tax credits for their investments in renewable energy and electric vehicles for years, tax-exempt organizations such as municipalities, school districts, nonprofits, and others can now benefit as well. Due to the uniqueness of the direct pay mechanism, and the fact that it applies to entities which typically do not file federal tax returns, the Governor’s Energy Office (GEO) and Governor’s Office of Policy, Innovation, and the Future (GOPIF) are providing targeted educational materials to ensure eligible entities are aware that they are eligible for these tax credits. While entities with federal tax liability benefit from tax credits in the form of reduced tax liability, tax-exempt organizations benefit from this mechanism through a direct payment.
Eligible entities may file for direct pay with their federal tax return for projects completed during the 2024 tax year and receive the credit. To take advantage of existing resources to lower the cost of energy, the GEO and GOPIF are working to ensure that eligible Maine entities that have previously invested in qualified projects such as solar, geothermal, and electric vehicle (EV) charger installations or purchased EVs, are aware of available tax credits. GEO and GOPIF will provide additional information during a series of webinars in spring 2025 (listed below).
A 2-page overview of direct pay is available to view and download via the following links: (PDF web version) (PDF print version).
Disclaimer: This webpage provides an overview of certain tax law for general informational purposes only. This webpage and the information contained in it are not tax guidance. The content is based on tax guidance on IRS.gov, information produced by third-party experts, and other publicly available information, and it relies on simplifications and generalizations to convey high-level points about the tax code. Please refer to guidance issued by the IRS and from your professional tax advisor for specific tax advice.
Webinars
GEO and GOPIF hosted a series of webinars in March 2025 to provide information and answer questions related to direct pay eligibility and filing. The webinar slides are available to view and download here.
Program Eligibility
Federal law defines eligible entities that can make use of direct pay. These include:
- State governments and their subdivisions (including public universities and community colleges)
- Local governments, Indian tribal governments and their subdivisions
- Agencies and instrumentalities of state, local, tribal, and U.S. territorial governments, (e.g., school districts, municipal utilities, water authorities, transportation authorities, etc.)
- Rural electric cooperatives
- Tax-exempt organizations (this includes any organization described in sections 501 through 530 – including 501c organizations – that meets the requirements to be recognized as exempt from tax under those sections)
Eligible projects are determined based on available federal tax credits. As of February 2025, there are 12 clean energy tax credits eligible for direct pay.
The most common direct pay-eligible investments include solar or geothermal energy generation, EVs and EV chargers, and energy storage installations. Energy efficiency upgrades (including window or lighting replacements) are not currently eligible for direct pay. A full list of the eligible tax credits, their uses, and their values can be found here.
FAQs
These FAQs have been adapted, for readability and ease of access, from the IRS website. For official guidance and the most up-to-date information, always refer to IRS.gov or contact your professional tax advisor.
- Q: What form of funding does direct pay take?
-
A. Direct pay is treated as an overpayment of taxes. Once an organization registers its project(s) with the IRS, then files a federal tax return that includes the appropriate forms and elective payment selection, the IRS will send a payment to that organization for the direct payment amount.
- Q: How long does it take to receive direct pay funds?
-
A: According to the IRS, Direct pay is not up-front capital support for a project, but functions more like a reimbursement for a completed project. Projects must be placed in service in order to be eligible for Direct Pay. Once a project is placed in service, a project must be registered with the IRS on their website, and then 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, but it may take longer.
- Q: What does a typical timeline look like to file for and receive direct pay?
-
A:
- Place eligible project(s) in service
- Choose relevant tax credit & any applicable bonus credits
- Collect documents & data, confirm compliance with tax credit requirements
- Register project(s) with the IRS via its online portal 120 days before tax filing deadline
- Receive ID numbers for project(s) from the IRS (estimated 60-120 days)
- File entity’s tax return by the filing deadline, based on its tax year
- Receive check for elective payment (estimated 45 days)
Your organization’s tax year will impact IRS-recommended filing deadlines. The IRS allows eligible entities to file for a 6-month extension.
Program Background
Federal tax credits for clean energy have been available to private companies and individuals with a federal tax liability for decades. In 2022, clean energy tax credits were expanded through federal legislation, and direct pay was created as a mechanism for entities without federal tax liability to access those credits.
Common direct pay tax credits include:
- Investment Tax Credit - Valued at a percentage of a project’s costs (generally 30 percent, but in some cases more)
- Commercial Clean Vehicle Tax Credit - Valued at a maximum of $7,500 for passenger vehicles and $40,000 for larger vehicles (e.g., buses)
- Electric Vehicle Charger (or other alternative fueling station) Credit - Valued at a percentage of a project’s costs (generally 30 percent) up to $100,000.
Eligible entities must pre-register their eligible projects with the IRS after the project is placed in service. They will receive project ID numbers and then must file a tax return, following typical tax deadlines based on their tax year. Entities will then receive a check or direct payment from the IRS for the amount of the credit.