Last Updated: July 31, 2023 | by Annabelle Swift and Allie Judge
The Inflation Reduction Act (IRA) was signed into law on August 16, 2022 and includes over $369 billion in investments for climate and clean energy. Now, the administration and federal agencies are turning towards the process of implementation. This includes issuing guidance, publishing requests for information, establishing new programs, and expanding existing programs.
CEBN is publishing answers to frequently asked questions on the IRA to help clarify how these programs can benefit you, your community, and your small business or organization – and, as a result, benefit our economy and our climate.
We know the implementation process can be unclear. Throughout, CEBN will provide key insights into where we are and what is coming up. This post will be updated periodically, so you may want to keep it bookmarked!
The Inflation Reduction Act is the most historic climate legislation ever passed in the United States. The law contains more than $369 billion in investments in clean energy and climate over 10 years. It includes sizable tax credits for a range of technologies and clean energy sources and supports various programs to reduce emissions.
Overall, the IRA is predicted to reduce emissions by roughly 40% relative to 2005 levels and to reduce household energy costs by an estimated $730 to $1,135 per year.
Certain tax credits from the IRA became available immediately when President Biden signed it into law in August 2022 while others go into effect in 2023 or later. Notably, the investment tax credit (ITC) and production tax credit (PTC) will shift to a technology-neutral framework in 2025, provided the facility emissions are net-zero. The ITC and PTC currently apply to specific clean energy technologies.
To check which tax credits were included and when they go into effect, we recommend searching through the White House’s IRA Guidebook. In addition, the Department of Energy (DOE) has put together a table of home energy credits available to consumers for the 2022 and 2023 tax years. The Solar Energy Technologies Office also has resources for homeowners, businesses, and manufacturers.
IRA also raised the annual cap for the R&D small business tax credit from $250,000 to $500,000 beginning January 1, 2023. This credit can be used to offset payroll taxes.
Since nonprofits and other tax-exempt entities were previously unable to benefit from tax credits, the IRA included a mechanism called “direct pay” or “elective payment,” which provides cash payments for the value of the tax credit directly to the tax-exempt entity. Examples of tax-exempt entities eligible for direct pay are nonprofits, local governments, tribal nations, faith communities, and cooperative and municipal utilities.
CEBN will soon be sharing more details on direct pay eligibility and benefits. For more information, you can look through the White House’s resource page on direct pay. The IRS has also released guidance on direct pay and transferability.
Most of the tax credits from the IRA have eligibility standards or bonus credits related to domestic content requirements—meaning products or services must be primarily manufactured or sourced in the U.S. or North America.
In the case of the Clean Vehicle Tax Credit, electric vehicles (EVs) or fuel cell vehicles (FCVs) purchased after January 1, 2023 are eligible for up to $7,500 in tax credits but require final assembly in North America for eligibility. The IRS has published a list of manufacturers who may be eligible.
There will also be bonus credits for meeting domestic content requirements for clean energy projects. Guidance is available here, and CEBN’s blog post provides a summary of the requirements.
Similar to the domestic content requirements, some of the tax credits include bonus credits contingent on meeting specific labor requirements.
The IRS issued guidance on November 29, 2022 on these requirements, placing them into effect for projects started after January 29, 2023. To learn more about finding apprentices, we recommend searching through apprenticeships.gov.
For more information, check out CEBN’s blog post on the labor requirements for the bonus credits.
The IRA also provides bonus credits on the ITC and PTC for qualified facilities, energy projects, or energy storage technologies located in “energy communities,” which are defined as communities that are either on brownfield sites, coal communities, or areas with historic employment related to fossil fuels. The IRS released updated guidance on the energy communities bonus credit on June 15, 2023.
For more information about eligibility, standards, and resources for accessing the energy communities bonus credit, check out CEBN’s blog.
The IRA included funding for new and existing climate and energy programs. Many of these grant programs will be administered by federal agencies like the Department of Energy or Environmental Protection Agency directly, and others will be administered through state agencies such as energy offices. A list of funding with upcoming deadlines can be found here: Federal Climate Funding Hub.
The IRA created the Greenhouse Gas Reduction Fund to leverage public funding to spur private capital for clean energy deployment through community financing institutions such as green banks, community development financial institutions (CDFIs), credit unions, and others.
In July 2023, EPA released three funding competitions, totaling $27 billion available to national nonprofits, state and local governments, and community financing institutions:
The IRA includes many provisions that intentionally target low-to-moderate income, historically disadvantaged, or frontline communities. Programs also target additional resources for project on tribal lands or in energy communities. For instance, the IRA created a $2.8 billion Environmental and Climate Justice block grant program at the EPA to fund nonprofits, education institutions, local government entities, and other community-based organizations on initiatives that address inequities and advance opportunities.
Several tax credits, such as the new EV tax credit, phase out eligibility above certain income thresholds, so these resources provide targeted support to low-to-moderate income households. In addition, the investment and production tax credits for solar and wind projects incorporate a 10% bonus for projects in a low-income communities and a 20% bonus for projects on low-income housing or qualifying economic development projects.
IRA established point of sale rebates for home energy efficiency or electrification projects such as energy efficient heating or cooling systems. These rebates are reduced for consumers with an income above 80% Area Median Income. IRA also sets aside $225m in funding in this program specifically for Indian Tribes.
Rewiring America has released a table outlining the specific IRA programs that invest in disadvantaged communities.
Yes! Various government agencies, trade associations, and organizations are releasing resources to help businesses and individuals understand how the IRA impacts them. Several resources are listed below:
General
Electric Vehicle Funding
Residential / Heating
Solar Energy
Wind Energy
Agriculture
Advanced Manufacturing
The IRA includes a new technology-neutral tax credit framework for projects placed in service in 2025-2032. This tech-neutral framework allows a power facility of any technology to qualify for either credit if carbon emissions are at or below zero. The Treasury Secretary will publish an annual list of technologies and emission rates for purposes of determining eligibility before 2025. Prevailing wage and apprenticeship requirements apply to bonus rates.
The IRS and other federal agencies have begun issuing guidance and “frequently asked questions” documents regarding IRA programs and tax credits. See below for a list of published content.
Guidance and Program Design:
FAQs:
Elective Pay and Transferability (Direct Pay)
The government releases RFIs or requests for comments as it works to implement and improve programs. Individuals and organizations can submit comments and provide feedback through these RFIs. See below for a list of past RFIs related to the IRA.
Past
Small businesses are set to benefit from the IRA’s tax credits, technical assistance, and grant programs, as outlined above. We hope you are as excited as we are about these opportunities!
Has your business or organization benefitted from the passage of the Inflation Reduction Act? Your story can help ensure that lawmakers and the public see the local benefits of robust clean energy investments. Fill out this short survey and let us know!
Plus, stay up to date on IRA implementation by subscribing to CEBN’s weekly newsletter.
NOTE: This blog post is intended for educational purposes only. Stakeholders may consider consulting legal or tax counsel in navigating Inflation Reduction Act programs.
