Direct Pay: how your nonprofit gets a check from the IRS for going solar
Your organization doesn’t owe federal income tax — and it no longer has to. Through Elective Pay (everyone calls it Direct Pay), a church, school, or 501(c) nonprofit can own its solar system and receive 30% or more of the project cost back as cash from the IRS. You don’t need the full amount up front, either. Here is the whole process, step by step.
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30%+
of eligible project cost paid back
Bonuses can push a qualifying project to 40%, 50%, or higher.
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2 forms
your CPA files
Form 990-T with Form 3468 attached, plus an IRS registration number.
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$0
big check required
Finance the project, then apply the IRS payment to the loan balance.
Start here
What Direct Pay actually is
For decades the federal solar tax credit was useless to tax-exempt organizations. A credit reduces a tax bill, and your organization doesn’t have one. The only way to capture the value was to let a for-profit company own the system and hope some of the savings were passed through in a lease or power purchase agreement.
Elective pay changed that. A tax-exempt organization can now claim certain clean-energy credits and have the IRS pay the credit out in cash rather than offset tax. Functionally it works like a refund: you own the solar array, you file a federal return for the year the system goes live, you elect direct pay, and the Treasury sends your organization the money.
That single change flips the math for churches, schools, shelters, clinics, and community nonprofits. Ownership is now the cheapest path instead of the most expensive one.
Eligibility
Who qualifies
Elective pay is open to what the IRS calls applicable entities — organizations that generally don’t pay federal income tax. If you are on this list and you own the system, you are in the conversation.
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501(c) nonprofits
Charities, foundations, and community organizations.
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Churches & houses of worship
Including synagogues, mosques, and temples.
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Schools & districts
Public and private, plus colleges and universities.
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State & local government
Cities, counties, and special districts.
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Tribal governments
Tribes and tribal enterprises.
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Other tax-exempt entities
Rural co-ops, hospitals, and similar organizations.
The money
How much can you get back?
The base federal credit reaches 30% of eligible project costs for qualifying projects that meet the applicable requirements. From there, several bonuses can stack on top — which is why some nonprofit projects recover far more than 30%.
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30%
Clean Electricity Investment Credit
The base federal credit on eligible project costs when the project meets applicable requirements.
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+10%
Domestic Content Bonus
For projects built with qualifying American-made steel, iron, and components.
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+10%
Energy Community Bonus
For projects in former coal, oil, or gas communities and certain brownfield areas.
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+10–20%
Low-Income Communities Bonus
Competitive — the project must qualify and receive an allocation from the program.
Worked example
A $200,000 solar project
- 30% base credit
- $60,000
- 30% + 10% domestic content
- $80,000
- 30% + 10% domestic + 10% energy community
- $100,000
If the project also wins a Low-Income Communities Bonus allocation, the payment can go higher still. Your CPA confirms the final eligible basis and credit amount.
Cash flow
You don’t need to write one big check
This is the objection we hear first: we don’t have $200,000 sitting in the operating account. You don’t need it. Nonprofits finance these projects, and the IRS payment arrives later and knocks the balance down.
Start with the bank you already use. Your existing lender knows your financials, your deposit history, and your board. That relationship very often produces the best rate and the lowest fees available to you — better than anything a solar company can arrange. Ask them for a commercial equipment or term loan for a rooftop solar installation, and tell them a federal elective-pay reimbursement is expected in the first or second year. Many lenders will size a bridge around that payment.
If your bank passes, or you want a competing quote, we work with lender partners that fund nonprofit solar — with rates currently starting around 7.5% and terms up to 30 years. Move the sliders to see what a project loan could look like for your organization.
Estimate your loan
Rates from 7.99% · Terms up to 30 yearsIf your electricity bill is higher than this loan payment, you save money from month one — and the 30-year term is what keeps the payment that low for most organizations.
Estimated monthly payment
$1,466/mo
- Origination fee
- $3,000
- Est. IRS elective-pay payment (30%)
- $60,000
Most organizations apply the IRS payment to the loan balance in year one or two, which cuts the payoff sharply. Your CPA confirms the final credit amount.
How the money actually gets released
Commercial construction loans fund in stages, not one lump sum. It protects everyone: the bank only pays for work that has actually been completed, and your organization is never funding equipment that hasn’t arrived. SolarSesame prepares and submits the funding paperwork to the bank at each stage, so there is nothing for your team to assemble.
Your part is small but critical: at each milestone the bank sends your organization a short release form for signature.
We’ll flag every release form before the bank sends it, so you always know what’s coming and when your signature is needed.
The process
Six steps from proposal to IRS payment
Nothing here is exotic. Two of the six steps are ours, one is your bank’s, and two belong to your accountant. Here is exactly who does what.
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Own the system
Your boardYour organization purchases the solar array — with cash, a loan, or a mix — and holds title to it. This is the decision that unlocks everything else. If someone offers you a PPA or lease instead, understand that you are handing them the credit you could have claimed yourself.
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Identify every credit you can stack
SolarSesameWe review the project, the equipment list, and the site location to find the bonuses you qualify for — domestic content on the hardware, energy community status by address, and whether a low-income community allocation is worth pursuing. This is also where equipment choices get made, because domestic content is a purchasing decision, not a paperwork one.
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Design, permit, and install
SolarSesameEngineering, structural review, permitting with your local building department, installation, inspection, and utility interconnection through to Permission to Operate. The date the system is placed in service is the date that determines your credit year, so we document it precisely. We also hand your CPA a complete cost breakdown and equipment package.
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Complete IRS pre-filing registration
Your CPABefore you can claim elective pay, the project must be registered through IRS Energy Credits Online. You submit project details and the IRS issues a registration number for that specific facility. No registration number, no elective pay — and the number must appear on the return. Start this early; it is the step organizations underestimate.
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File the return and make the election
Your CPAYour accountant files an annual federal return for the tax year the system was placed in service — for most nonprofits that is Form 990-T — with Form 3468 attached to compute the investment credit, and elects direct pay using the registration number from step 4. The election is made on an original, timely filed return — including extensions.
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Receive the payment
The IRSOnce the return is processed, the IRS pays the credit to your organization. Apply it straight to the loan principal and your remaining payments drop — or put it back into your programs. Either way the system keeps producing power for another 20+ years.
Simple end-to-end example
- Project cost
- $200,000
- Federal credit at 30%
- $60,000
- Direct Pay from the IRS
- $60,000
- Net cost to the organization
- $140,000
Paperwork
The forms you’ll sign — and who fills them in
There are only two federal forms at the center of this, plus the online registration. Download them so your treasurer and accountant can look at them before the first meeting.
Form 990-T
Exempt Organization Business Income Tax Return
The return that carries the elective pay election. Filing it does not make your organization taxable.
Open the PDF (PDF, opens in a new tab)Form 3468
Investment Credit
Attached to the 990-T. Computes the investment credit on the solar property and reports the bonuses.
Open the PDF (PDF, opens in a new tab)Timing
Why timing is the real risk
The credit is tied to the year your system is placed in service, and federal clean-energy rules have been amended repeatedly. Requirements around construction start dates, equipment sourcing, and program windows have tightened, and they can change again.
A commercial nonprofit project is not a two-week job. Board approval, a loan decision, structural review, permitting, equipment lead times, and utility interconnection realistically add up to several months — and interconnection queues are the part nobody controls.
Practically, that means the decision to start is worth more than the decision to optimize. Get the proposal, get the bank conversation going, and have your CPA confirm the current deadlines that apply to your fiscal year.
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Register before you file
IRS pre-filing registration must be completed and a number issued before the return goes in.
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Placed-in-service date rules
The energization date sets your credit year. Interconnection delays can push it.
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Confirm current rules
Federal requirements have changed. Your CPA verifies what applies to this project.
Our approach
We build non-export systems — and that’s how our pricing stays best
Most solar companies connect your array to the utility’s export program and send your extra power back to the grid. In California, that path triggers heavy state requirements that add serious cost to a commercial project. We don’t go that route.
A non-export system pairs solar panels with a battery. Your panels power your building and charge the battery, and the battery carries you through evenings, peak-rate hours, and outages. Nothing is sent back to the grid — so there’s no export paperwork, none of those state-driven costs, and your utility bill still drops dramatically.
Questions
Questions boards always ask
We don’t pay federal income tax. How can we get a tax credit?
That is exactly the problem elective pay was created to solve. Before it existed, a tax credit was worthless to an organization with no tax bill, so nonprofits had to hand ownership to a for-profit partner to capture any value. Under elective pay, you own the system, claim the credit on a federal return, and the IRS pays the credit to you as a refund instead of applying it against tax you don’t owe.
Do we have to file a tax return even though we’re exempt?
Yes. Claiming elective pay requires filing an annual return — for most nonprofits that is Form 990-T — with Form 3468 attached, even if you have never filed a 990-T before. Your CPA files it; it does not make your organization taxable.
Can we do this if a third party owns the panels under a PPA or lease?
No. Elective pay follows ownership. Under a power purchase agreement or lease, the third-party owner claims the federal credit and typically prices some of that value into your rate. If capturing the credit yourself is the goal, your organization must own the system — which is why financing usually beats a PPA for a nonprofit that qualifies.
How long does the IRS take to pay?
The payment comes after your return is filed and processed, so plan on receiving it in the year following the year the system is placed in service, and allow several months of processing. This is why organizations use a loan or bridge financing to cover the project and then apply the IRS payment to the balance.
Is the credit based on the whole project cost?
It is based on eligible basis, which generally includes panels, inverters, racking, wiring, labor to install, and certain interconnection costs. Items like unrelated roof replacement or site work that isn’t part of the energy property are usually excluded. Your CPA determines eligible basis from the project documentation we provide.
What about batteries?
Standalone and paired energy storage can be eligible energy property in its own right, which matters for organizations that want backup power for a shelter, cooling center, or sanctuary. We’ll size and quote storage separately so your CPA can see the cost breakdown.
Does this affect our nonprofit status or our donors?
No. Elective pay is a payment of a credit you are entitled to, not taxable income from an unrelated business, and it does not change your exempt status. Confirm the reporting treatment with your accountant.
What does SolarSesame actually handle versus our accountant?
We handle the engineering, equipment selection, permitting, installation, utility interconnection, and the complete project documentation package — cost breakdown, placed-in-service date, equipment lists, and bonus-credit substantiation. Your CPA handles the IRS pre-filing registration support, the 990-T and 3468, and the elective pay election itself.
Take this to your board
Your next four moves
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1
Get a real proposal with system size, production estimate, installed cost, the solar-plus-battery design, and the estimated credit — not a ballpark.
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2
Call your existing bank and ask about a commercial term loan for rooftop solar, mentioning the expected federal elective-pay reimbursement.
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3
Send your CPA this article along with Form 990-T and Form 3468, and ask them to confirm eligibility and the filing deadline for your fiscal year.
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4
Approve the project at a board meeting with all three numbers in hand: installed cost, monthly loan payment versus current utility bill, and estimated IRS payment.
Let’s put real numbers in front of your board
We’ll design the non-export system, confirm your site qualifies, estimate your Direct Pay credit including bonuses, and lay the financing options side by side. Your CPA handles the filing — we hand them everything they need.
SolarSesame is not a tax advisor, accountant, or law firm. This article is general information about federal elective pay and is not tax advice. Eligibility, qualifying costs, bonus credits, filing deadlines, and the final credit amount must be confirmed by your organization’s CPA or tax professional. Loan terms and rates are those quoted to us by the lenders and are subject to change, credit approval, and final underwriting.