Overview

Manufacturers are eligible for two federal tax credits that support clean energy manufacturing in the United States: the Advanced Manufacturing Production Tax Credit (45X MPTC) and the Advanced Energy Project Investment Tax Credit (48C ITC). The 45X MPTC provides tax credits for each clean energy component domestically produced, while the 48C ITC provides a tax credit for purchasing and commissioning property to build an industrial or manufacturing facility.

The 45X MPTC was established and the 48C ITC was expanded, as part of the Inflation Reduction Act of 2022.

Projects cannot claim both the 45X MPTC and 48C ITC—if components were made at a facility that claimed a 48C ITC, manufacturers cannot also claim the 45X MPTC.

Which Tax Credit Should I Choose?

The 48C ITC is an upfront tax credit based on the capital investment in an industrial (e.g. recycling) or manufacturing facility and does not vary by how much product a plant sells, while the 45X MPTC is earned over time based on the production and sale of specific, eligible components. Whether to choose the ITC or the MPTC depends foremost on whether the facility will be manufacturing MPTC-eligible components (as the ITC eligibility is broader). If eligible for both, the decision depends on the comparative significance of capital cost versus operating cost for the facility.

In general, manufacturing facilities which produce components eligible for the 45X MPTC receive more value from the 45X MPTC than the 48C ITC.

Advanced Manufacturing Production Tax Credit (45X MPTC)

The 45X MPTC is a per-unit tax credit for each clean energy component domestically produced and sold by a manufacturer.[1] The 45X MPTC is claimed on federal corporate income taxes.[2]

The credit varies by eligible component and is multiplied by the number of units produced by the taxpayer that were sold that year. The table below summarizes the eligible solar components, their definitions, and the unit credit amount.

What Qualifies for the 45X MPTC? 

Clean energy components that qualify for the 45X MPTC include the PV module and some of its subcomponents, inverters, tracking system components, batteries, and certain critical minerals. Components that are produced at a facility that received a 48C ITC after August 2022 are not eligible.

Summary of Eligible Components for Advanced Manufacturing Production Tax Credit

PV Module and Subcomponents

PV Inverter

PV Tracking Systems

Batteries

Critical Minerals

When do the Tax Credits Phase Out?

The phaseout does not apply to the production of critical minerals, which continue indefinitely.

Manufacturers can also monetize the tax credit through a direct payment from the Internal Revenue Service (IRS) is lieu of a credit against their taxes due, or opt to transfer the credit, as described below:

• Direct pay option: Manufacturers can receive a refund for 45X MPTC tax credits for the first five years they are claimed, though are still subject to the 2033 credit sunset. The five-year limitation does not apply if the manufacturer is a tax-exempt organization (i.e. non-profit), state, municipality, the Tennessee Valley Authority, Indian Tribal government, any Alaskan Native Corporation, or any rural electric cooperative.  A penalty of 20% may apply where excess payments occur.[3]
• Transfer of credit: Manufacturers may also elect to transfer all, or a portion, of the tax credits for a given year to an unrelated eligible taxpayer. Payments for the credit must be made in cash and are not considered a taxable event (i.e. no taxes are owed on receiving the payment and no deduction is possible for making the payment). A penalty of 20% may apply where excess credits occur.[4]

Advanced Energy Project Credit (48C ITC)

Overview

The 48C ITC is a U.S. Department of Treasury program that awards tax credits for investing in various eligible property:

• designed to produce or recycle advanced energy components, such as solar modules, inverters, and batteries
• re-equip industrial or manufacturing facilities with equipment designed to reduce greenhouse gas emissions by at least 20 percent through the installation of low- or zero-carbon process heat systems (among other things)
• re-equip, expand, or establish an industrial facility for the processing, refining, or recycling of critical materials[5]

The credit can be claimed on federal corporate income taxes and represents a percentage of eligible investment costs placed in service during the tax year.

Starting in 2023, awardees are eligible for an ITC of 30% of qualifying investment if they satisfy the labor requirements issued by the Treasury Department for any labor associated with re-equipping, expansion, or establishment of the manufacturing facility.[6] Projects that do not meet the labor requirements are only eligible for a 6% tax credit. These labor requirements do not apply to operating the facilities after they have been placed into service.

Manufacturers must apply to receive the grant at such time and containing such information as Treasury may require. The program will begin accepting concept papers on May 31, 2023, for a first round of $4 billion in credits, with approximately $1.6 billion reserved for projects in energy communities. Concept papers will be due no later than July 31, 2023.[7]

Once an applicant is allocated a credit by Treasury, it has two years from the date of allocation provide evidence, such as permits, that the requirements have been met, after which Treasury will provide certification for the credit. Within 2 years of receiving certification, the applicant must place the project in service and notify Treasury; the location cannot be materially different from the location specified in the application. Treasury will make the awardees and the credit amounts public after awarding the tax credits.

Availability of Credits

• The 48C program was first initiated under the American Recovery and Reinvestment Act (ARRA) of 2009 to support investments in projects that establish, expand or re-equip clean energy manufacturing facilities that produce solar, storage, and electric grid equipment systems and components (other types of clean energy manufacturing facilities are also eligible for the 48C ITC but are beyond the scope of this guidance).
• Originally funded at $2.3 billion, tax credits were made available to 183 domestic clean energy manufacturing facilities during Phase I of the program in January, 2010. Phase II was launched in 2013 to utilize $150 million in tax credits that were not used by awardees from the first round.[8]
• The Inflation Reduction Act of 2022 was enacted in August 2022, expanding the types of qualified investments,[9] and allowing for $10 billion in new 48C tax credits to be allocated to projects in 2023 or later. At least $4 billion of the credits (40%) must be allocated to projects located in census tracts that are designated in the Act as an ”energy community” and that have not been allocated a 48C credit before the enactment of the Inflation Reduction Act.
• Denial of double benefits: projects will lose their ability to claim the 45X MPTC on components made at a facility that has received the 48C ITC after enactment of the Inflation Reduction Act.[10]  

Selection Criterion

Applications will be evaluated based on technical review criteria to be described in additional guidance provided by the IRS on May 31, 2023. These criteria will include selection criteria described in the IRS 48C code under subsection (d), and additional criteria that furthers the goals of the program. As stated in the initial IRS guidance issued on February 13, 2023, the program anticipates evaluating applications based on the net impact of the qualifying project in avoiding or reducing greenhouse gases emissions; on the community benefits of the proposed qualifying advanced energy projects, which may include community and labor engagement and commitment to high quality and accessible jobs and workforce pathways; the extent to which proposed projects address specific gaps, vulnerabilities, or risks in the domestic production of clean energy products; and other criteria to be published in additional IRS guidance.[11]

Direct Pay and Transfer of Credit

• Direct pay option: Manufacturers can receive a refund for 48C ITC tax credits only if they are a tax-exempt organization (i.e., non-profit), state, municipality, the Tennessee Valley Authority, Indian Tribal government, any Alaskan Native Corporation, or any rural electric cooperative. A penalty of 20% may apply where excess payments occurred.[12]
• Transfer of credit: Manufacturers may also elect to transfer all, or a portion, of the tax credits for a given year to an unrelated eligible taxpayer. Payments for the credit must be made in cash and are not considered a taxable event (i.e. no taxes are owed on receiving the payment and no deduction is possible for making the payment). A penalty of 20% may apply where excess credit occurred.[13]

More Information

Ask Questions

Internal Revenue Service (IRS), 1111 Constitution Avenue, N.W., Washington, D.C. 20224, (800) 829-1040.

Find Resources

• Find more information on the federal statutes regarding the ITC and MPTC at www.govinfo.gov.
• SETO held a webinar on September 27, 2022, to discuss the recent policy changes in the Inflation Reduction Act. Watch the recording, download the slides, and read the Q&A.
• View SETO's other federal solar tax credit resources.
• Download a PDF version of this webpage: Federal Tax Credits for Solar Manufacturers

Endnotes

[1] Product must be sold to an unrelated party, i.e., those who are not treated as a single employer under the regulations prescribed under section 52(b), or that are integrated, incorporated, or assembled into another eligible component that is sold to an unrelated party. https://www.irs.gov/newsroom/faqs-regarding-the-aggregation-rules-under-section-448c2-that-apply-to-the-section-163j-small-business-exemption. 

[2] 26 U.S.C. § 45X.

[3] H.R.5376 – Inflation Reduction Act of 2022, Section 6417. Taxpayers may elect to stop receiving direct payments in subsequent years, however, once stopped, they cannot go back to direct payments.

[4] H.R.5376 – Inflation Reduction Act of 2022, Section 6418. The transferee cannot further transfer any credits it received in the transfer.

[5] § 7002(a) of the Energy Act of 2020 (30 U.S.C. § 1606(a))   

[6] The prevailing wage requirement states that all wages any laborers and mechanics employed by the taxpayer or any contractor or subcontractor in the re-equipping, expansion, or establishment of a manufacturing facility must be paid at a rate not less than prevailing rates of that locality as determined by the Secretary of Labor. The apprenticeship requirement states that a certain percentage of the total construction labor hours for a project must be performed by an apprentice. The percentage increases over time, starting at 10% for projects beginning construction in 2022, 12.5% for projects beginning construction in 2023, and 15% for projects beginning construction after 2023. Projects can correct the prevailing wage requirements if they were originally not satisfied, by paying the affected employees the difference in wages plus interest, and paying the Secretary of Labor $5,000 for each impacted individual. The apprenticeship requirements also can be satisfied if a good faith effort was made to comply or if a penalty is paid to the Secretary of Treasury in the amount of $50/ hour of non-compliance. Both penalties increase if the requirements are intentionally disregarded. For more information see Section 13101(f) of the Inflation Reduction Act of 2022.

[7] https://www.irs.gov/pub/irs-drop/n-23-18.pdf

[8] /downloads/fact-sheet-48c-manufacturing-tax-credits.

[9] The Inflation Reduction Act of 2022 expanded eligible manufacturing facilities to include (but not limited to) investments made to produce energy storage systems and components, grid modernization equipment or components, and electrolyzers run on renewable electricity.

[10] Project investments are also ineligible for the 48C credit if they were claimed for the 48B (qualifying gasification project), 48E (clean electricity investment), 45Q (carbon sequestration credit), or 45V (clean hydrogen) credit.

[11] H.R.5376 – Inflation Reduction Act of 2022, Section 6417. Taxpayers may elect to stop receiving direct payments in subsequent years, however, once stopped, they cannot go back to direct payments.

[12] H.R.5376 – Inflation Reduction Act of 2022, Section 6418. The transferee cannot further transfer any credits it received in the transfer.