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IRA Guide for Nonprofits and Municipalities

Leverage IRA Incentives to Fund Clean Energy in Your Community or Organization

The Inflation Reduction Act (IRA) expanded, extended, and established tax credits that are driving billions in clean energy investment across the U.S. This includes a new provision, known as “direct pay” or “elective pay”, that enables nonprofits, municipalities, and other tax-exempt organizations to directly access clean energy tax credits for the first time. Prior to the IRA, third-party arrangements, such as power purchase agreements, were the most feasible option for many nonprofits and local governments to access the benefits of clean energy.

While transferring tax credits to a for-profit partner was possible, it presented financial and logistical challenges for tax-exempt organizations that discouraged their direct ownership of larger clean energy systems. But now, installing and owning clean energy technologies like solar panels and electric vehicles is a more affordable, straightforward investment at any scale.

This guide will cover how nonprofits and local governments can advance clean energy in their own operations and community with IRA tax credits and direct pay.

How Direct Pay Works for Clean Energy Projects

Direct pay makes clean energy tax credits accessible to tax-exempt entities that have historically been unable to claim them to offset project costs. Through direct pay, tax-exempt organizations can receive a payment from the Internal Revenue Service (IRS) that’s equal to the tax credit amount for qualifying clean energy technologies or projects [1].


This new provision makes clean energy projects as cost-effective for tax-exempt organizations as they are for the private sector.


Direct pay empowers nonprofits and local governments to reduce their energy use and apply the associated savings to advancing their mission and services – all while supporting local clean energy jobs and New York’s climate goals Link opens in new window - close new window to return to this page..

Eligible clean energy projects placed in service after 2022 may qualify for direct pay. Whereas grant funding and loans can be competitive, direct pay is guaranteed for IRA-eligible projects that meet the requirements specific to that tax credit.

Who Is Eligible for Direct Pay?

Many government and non-government entities with tax-exempt status are eligible for direct pay, including[2]:

Which Clean Energy Technologies Qualify?

There are 12 IRA tax provisions Link opens in new window - close new window to return to this page. that are eligible for direct pay, including investments in manufacturing, clean vehicles, clean fuel production, clean energy generation, and carbon capture. However, tax credits for clean vehicles and clean energy generation represent the most applicable opportunities for many tax-exempt organizations to tap into IRA savings.

Tax credits for both plug-in hybrid and zero-emission vehicles are eligible for direct pay. Plug-in hybrid vehicles are eligible for a credit up to 15% of the cost, while zero-emission vehicles can receive a tax credit up to 30% of the cost. Clean vehicle tax credits are capped at $7,500 for light-duty vehicles and $40,000 for heavy-duty models, respectively[3].

Vehicle charging and hydrogen fueling stations can also qualify for a direct pay credit of up to $100,000, or 30% of the project cost. Note that these projects must be located in eligible low-income and non-urban areas Link opens in new window - close new window to return to this page. to qualify.

Renewable energy generation projects like solar and wind can claim direct pay through either the Investment Tax Credit (ITC) or Production Tax Credit (PTC). The ITC delivers an upfront tax credit that’s calculated as a percentage of the project cost, whereas the PTC provides a credit per kilowatt-hour for the renewable electricity generated during the first 10 years of a project’s operation.

The IRA increased the ITC to 30% of the cost of solar, storage, geothermal, and wind energy projects that meet labor requirements Link opens in new window - close new window to return to this page.. Renewable energy projects that source domestic materials or are sited in low-income communities Link opens in new window - close new window to return to this page. and designated energy communities Link opens in new window - close new window to return to this page. can receive bonus credits of up to 40%, meaning a total combined tax credit worth 70% of the project cost.

Together, these tax credits make the direct ownership of renewable energy systems an increasingly affordable investment for tax-exempt entities to offset their own energy use or provide low-cost clean power to their communities.

Learn More: Solar and Storage – Inflation Reduction Act Funding

Applying for Direct Pay

There are several steps to applying for direct pay. But before initiating a clean energy project, check that it qualifies for a direct pay-eligible tax credit and meets the labor and domestic content requirements, if applicable.

Clean energy projects must be completed and put into service prior to accessing direct pay. Tax returns are due in mid-May of the year following the project completion for most tax-exempt entities. For example, tax returns and documentation on a solar project completed in October 2024 would be due by May 15, 2025, to claim direct pay[4].

Tax-exempt entities need to register with the IRS before their tax return is due. The IRS will request information about the clean energy project, the credit you’re applying for, and your organization to complete the pre-registration process. Consider registering several months in advance of when tax returns are due [1].

Once a registration number is provided by the IRS, select elective payment on the IRS form and file your tax return by the deadline. Direct payment occurs once the tax return is processed by the IRS.

Since many tax-exempt entities are filing for the first time, the IRS has guidance for tax-exempt organizations Link opens in new window - close new window to return to this page. filing tax returns and claiming clean energy tax credits.

How to Maximize Direct Pay With NYS Programs and Incentives

Tax-exempt entities can combine direct pay with utility rebates and New York State programs and incentives to further the cost-effectiveness of their clean energy investments.

Two direct pay-eligible clean energy technologies, solar and geothermal heat pumps, also qualify for State-level incentives. NY-Sun offers incentives and financing to make installing solar more affordable, while geothermal heat pump systems may be eligible for both utility and NYS Clean Heat rebates Link opens in new window - close new window to return to this page..

Municipalities, public facilities, and tax-exempt workplaces may be eligible for charging station funding through Charge Ready NY 2.0 or the Municipal Zero-Emission Vehicle program Link opens in new window - close new window to return to this page..

New York cities, counties, towns, and villages can receive grant funding through NYSERDA’s Clean Energy Communities (CEC) program to invest in renewable energy systems, zero-emission vehicles, and other clean energy technologies.

Nonprofit organizations can get cost-share funding for Green Jobs – Freen New York energy studies to identify and assess opportunities to incorporate clean energy and improve energy efficiency in their facilities.

Meanwhile, under-resourced public school districts can access funding through the Clean Green Schools Initiative for the planning and installation of clean energy projects and energy efficiency upgrades.

These and other types of tax-exempt entities may be eligible for funding to complete a targeted building energy study through the Flexible Technical Assistance (FlexTech) program.

Promoting IRA Benefits in Your Community

Tax-exempt organizations, especially tribal governments, nonprofits, and municipalities are well-positioned to promote the IRA tax credits available to residents, property owners, and businesses in their communities. Later in 2024, IRA rebates will be launched to help lower the upfront cost of clean energy equipment for low- to moderate-income New Yorkers.

Our Inflation Reduction Act guides help digest the multitude of IRA-eligible purchases and how they can be combined with New York State incentives to increase savings. Additionally, tax-exempt organizations can direct community members to their Regional Clean Energy Hub for hands-on support navigating clean energy programs and energy assistance.

More on Communities and Clean Energy

Find out more about community clean energy initiatives across New York State.


  1. The United States Government. (2023b, July 5). Direct pay. The White House. https://www.whitehouse.gov/cleanenergy/directpay/ Link opens in new window - close new window to return to this page. Back to content
  2. Elective pay and transferability frequently asked questions: Elective pay. Internal Revenue Service. (n.d.). https://www.irs.gov/credits-deductions/elective-pay-and-transferability-frequently-asked-questions-elective-pay Link opens in new window - close new window to return to this page. Back to content
  3. Commercial Electric Vehicle (EV) and fuel cell electric vehicle (FCEV) tax credit. Alternative Fuels Data Center: Commercial Electric Vehicle (EV) and Fuel Cell Electric Vehicle (FCEV) Tax Credit. (n.d.). https://afdc.energy.gov/laws/13039 Link opens in new window - close new window to return to this page. Back to content
  4. Federal Solar Tax Credits for Businesses. Energy.gov. (n.d.). https://www.energy.gov/eere/solar/federal-solar-tax-credits-businesses#_edn1Link opens in new window - close new window to return to this page. Back to content

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