0424 Publ 5817 (PDF)

Official source: IRS Forms, Instructions & Publications (https://www.irs.gov/pub/irs-pdf/p5817.pdf), retrieved 2026-10-03. U.S. Government work (17 U.S.C. § 105).

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Elective pay allows applicable entities, including tax-exempt and governmental entities that would otherwise be unable to claim certain credits because they do not owe federal income tax, to benefit from some clean energy tax credits. By choosing this election, the amount of the credit is treated as a payment of tax and any overpayment will result in a refund.

For example, because of the Inflation Reduction Act, a local government that makes a clean energy investment that qualifies for the investment tax credit can file an annual tax return with the IRS to claim elective pay for the full value of the investment tax credit, as long as it meets all of the requirements including a pre-filing registration requirement. As the local government would not owe other federal income tax, the IRS would then make a refund payment in the amount of the credit to the local government.

Applicable entities can use elective pay. Applicable entities include tax-exempt organizations, states and political subdivisions such as local governments, Indian tribal governments, 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.

Generally, only “applicable entities” are eligible for elective pay. However, there are special rules for three of the clean energy tax credits. Specifically, other taxpayers that are not “applicable entities” may make an election to be treated as an applicable entity for elective pay with respect to the applicable credit property giving rise to

1. The section 45Q credit (credit for carbon oxide sequestration),

2. The section 45V credit (credit for production of clean hydrogen), or

3. The section 45X credit (advanced manufacturing production credit).

There are additional rules if the taxpayer is a partnership or S Corporation.

Eligible entities would claim and receive an elective payment by making an elective payment election on their annual tax return along with any form required to claim the relevant tax credit.

However, there are steps leading up to this, such as a required pre-filing registration process. An EIN or TIN is required to complete the pre-filing registration process.

Electronic return filing is strongly encouraged.

1. Identify and pursue the qualifying project or activity: You will need to know what applicable credit you intend to earn and use elective pay for.

2. Determine your tax year, if not already known: Your tax year will determine the due date for your tax return.

3. Placed in service: The applicable credit property must be placed in service BEFORE a registration number will be issued.

4. Complete pre-filing registration with the IRS: This will include providing information about yourself, which applicable credits you intend to earn, and each eligible project/property that will