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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.
The one-sentence version
Your organization can own its solar system and have the federal government reimburse a significant portion of the project cost through Direct Pay.
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.
501(c) nonprofits
Charities, foundations, and community organizations.
Churches & houses of worship
Including synagogues, mosques, and temples.
Schools & districts
Public and private, plus colleges and universities.
State & local government
Cities, counties, and special districts.
Tribal governments
Tribes and tribal enterprises.
Other tax-exempt entities
Rural co-ops, hospitals, and similar organizations.
The one disqualifier that matters
You must own the system. If a third party owns the panels under a PPA or lease, that owner claims the credit — not you. Ownership is the entire premise of direct pay.
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%.
30%
Clean Electricity Investment Credit
The base federal credit on eligible project costs when the project meets applicable requirements.
+10%
Domestic Content Bonus
For projects built with qualifying American-made steel, iron, and components.
+10%
Energy Community Bonus
For projects in former coal, oil, or gas communities and certain brownfield areas. Not sure if your site qualifies?
Check your address on the Energy Community mapping tool+10-20%
Low-Income Communities Bonus
Competitive — the project must qualify and receive an allocation from the program. See if your site is in a designated area?
Check your address on the Low-Income Communities mapWorked 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.
Rates move — these numbers are a starting point
The rate and fee above reflect typical terms we’re seeing today, not a quote. Every project is priced on credit review and underwriting, and terms change with the market. We’ll run your project against your own bank and our lender partners so the board can compare real numbers side by side.
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.
Sign the release form promptly
The bank will not release funds until that form is signed and returned — no exceptions. Signing it the day you receive it is the single most important thing you can do to keep the project moving: funds flow, equipment and crews stay scheduled, and your installation stays on track. A form that sits unsigned in an inbox can pause work for days.
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.
- 1
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.
- 2
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.
- 3
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.
- 4
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.
- 5
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.
- 6
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
Form 3468
Investment Credit
Attached to the 990-T. Computes the investment credit on the solar property and reports the bonuses.
Open the PDF
Talk to your accountant before you file
We are solar contractors, not tax advisors. Your CPA or tax professional should confirm eligibility, eligible basis, which bonuses apply, the filing deadline for your fiscal year, and the mechanics of the election. Bring them in early — the registration step and the placed-in-service date both need to be on their calendar, not discovered at filing time.
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.
Register before you file
IRS pre-filing registration must be completed and a number issued before the return goes in.
Placed-in-service date rules
The energization date sets your credit year. Interconnection delays can push it.
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.
Not every building is a fit — and we’ll tell you quickly
Non-export systems work best for buildings with steady daytime power use and room for a battery. We only take on nonprofit projects where this design pencils out — that discipline is exactly how our pricing stays the best. A short consultation is all it takes to confirm whether your site qualifies.
Questions
Questions boards always ask
Take this to your board
Your next four moves
- 1
Get a real proposal with system size, production estimate, installed cost, the solar-plus-battery design, and the estimated credit — not a ballpark.
- 2
Call your existing bank and ask about a commercial term loan for rooftop solar, mentioning the expected federal elective-pay reimbursement.
- 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.
- 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.