Disclaimer: This U.S. Department of Energy (DOE) Solar Energy Technologies Office (SETO) resource provides an overview of the federal investment and production tax credits. It does not constitute professional tax advice or other professional financial guidance and may change based on additional guidance from theTreasury Department. See the Homeowner’s Guide to the Federal Tax Credit for Solar Photovoltaics for information for individuals and the Federal Solar Tax Credit for Businesses for information for businesses.
Series 4 production line at the First Solar manufacturing plant in Perrysburg, OH. Photo courtesy of Dennis Schroeder / National Renewable Energy Laboratory.
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 Qualifiesfor 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
Eligible Components | Definition | Credit Amount |
Solar-grade polysilicon | Silicon that is suitable for photovoltaic manufacturing and is purified to a minimum purity of 99.999999 percent silicon by mass. | $3 per kilogram (kg) |
PV wafer | A thin slice, sheet, or layer of semiconductor material of at least 240 square centimeters that comprises the substrate or absorber layer of one or more photovoltaic cells. Produced by a single manufacturer either i) directly from molten or evaporated solar grade polysilicon or deposition of solar grade thin film semiconductor photon absorber layer, or ii) through formation of an ingot from molten polysilicon and subsequent slicing. | $12 per square meter (m2) |
PV cell (crystalline or thin-film) | The smallest semiconductor element of a solar module that performs the immediate conversion of light into electricity. | 4¢ per watt-direct current (Wdc) |
Polymeric backsheet | A sheet on the back of a solar module that acts as an electric insulator and protects the inner components of such module from the surrounding environment. | 40¢ per m2 |
PV Module | The connection and lamination of photovoltaic cells into an environmentally protected final assembly that is suitable to generate electricity when exposed to sunlight, and ready for installation without an additional manufacturing process. | 7¢ per Wdc |
PV Inverter
Eligible Components | Definition | Credit Amount |
Central inverter | Suitable for large utility-scale systems. >1 megawatt-alternating current (MWac) | 0.25¢ per watt-alternating current (Wac) |
Utility inverter | Suitable for commercial or utility-scale systems. ≥125 kWac, ≤1 MWac, with a rated output ≥600 volt three-phase power. | 1.5¢ per Wac |
Commercial inverter | Suitable for commercial or utility-scale applications. ≥20kWac, ≤125 kWac with a rated output of 208, 480, 600, or 800 volt three-phase power >600 volt three-phase power. | 2¢ per Wac |
Residential inverter | Suitable for a residence. ≤20 kWac, with a rated output of 120 or 240 volt single-phase power. | 6.5¢ per Wac |
Microinverter | Suitable to connect with one solar module. ≤650 Wac with a rated output of i) 120 or 240 volt single-phase power, or ii) 208 or 480 volt three-phase power. | 11¢ per Wac |
PV Tracking Systems
Eligible Components | Definition | Credit Amount |
Torque tube | A structural steel support element (including longitudinal purlins) that is part of a solar tracker, is of any cross-sectional shape, may be assembled from individually manufactured segments, spans longitudinally between foundation posts, supports solar panels and is connected to a mounting attachment for solar panels (with or without separate module interface rails), and is rotated by means of a drive system. | 87¢ per kg |
Structural fasteners | A component that is used to connect the mechanical and drive system components of a solar tracker to the foundation of such solar tracker, to connect torque tubes to drive assemblies, or to connect segments of torque tubes to one another. | $2.28 per kg |
Batteries
Eligible Components | Definition | Credit Amount |
Electrode active materials | Cathode materials, anode materials, anode foils, and electrochemically active materials, including solvents, additives, and electrolyte salts that contribute to the electrochemical processes necessary for energy storage. | 10% of the costs incurred by the taxpayer due to production of such materials |
Battery cells | An electrochemical cell comprised of 1 or more positive electrodes and 1 or more negative electrodes, with an energy density of not less than 100 watt-hours per liter, and capable of storing at least 12 watt-hours of energy. The capacity of the cell to the maximum discharge amount of the cell or module (capacity-to-power ratio) cannot exceed 100:1. | $35 per kilowatt-hour (kWh) |
Battery module | A module, in the case of a module using battery cells, with 2 or more battery cells that are configured electrically, in series or parallel, to create voltage or current, as appropriate, to a specified end use, or with no battery cells, and with an aggregate capacity of not less than 7 kilowatt-hours (or, in the case of a module for a hydrogen fuel cell vehicle, not less than 1 kilowatt-hour). The capacity of the module to the maximum discharge amount of the cell or module (capacity-to-power ratio) cannot exceed 100:1. | $10 (or, in the case of a battery module that does not use battery cells, $45) per kWh |
Critical Minerals
Eligible Components | Definition | Credit Amount |
Critical minerals | In addition to products and components, the mining of certain critical minerals are included. Those most likely to pertain to the solar PV supply chain include: Aluminum that is purified to 99.9% or converted from bauxite to at least 99% purity; graphite that is purified to a minimum purity of 99.9%; tellurium that is purified to at least 99% purity or converted to cadmium telluride; indium that is purified to at least 99 percent, converted to indium tin oxide, or converted to indium oxide of at least 99.9% purity; gallium that is purified to 99% purity; arsenic that is purified to 99% purity; titanium that is purified to 99% purity. | 10% of the costs incurred by the taxpayer due to production of such 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 ITCis 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 mustplace 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 MPTCat www.govinfo.gov.
- SETO held a webinar on September 27, 2022, to discuss the recent policy changes in the Inflation Reduction Act. .
- View SETO's other federal solar tax credit resources.
- Download a PDF version of this webpage: Federal Tax Credits for Solar Manufacturers
Subscribe to the Solar Energy Technologies Office Newsletter
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.
FAQs
What is 10% advanced manufacturing production tax credit? ›
Under the regulation, a tax credit equal to 10% of the cost of production is awarded to the producer of the following applicable critical minerals used in such manufacturing: aluminium, antimony, barite, beryllium, cerium, caesium, chromium, cobalt, dysprosium, europium, fluorspar, gadolinium, germanium, graphite, ...
Is there a solar production tax credit? ›The production tax credit (PTC) is a per kilowatt-hour (kWh) tax credit for electricity generated by solar and other qualifying technologies for the first 10 years of a system's operation.
What is the manufacturing tax credit? ›This program, administered by the California Department of Tax and Fee Administration (CDTFA), provides a sales tax exemption of 3.9375% for basic manufacturing equipment. In addition, equipment for food processing, research and development, and biotechnology are also eligible for the exemption.
What are the federal tax credits for solar? ›Solar PV systems installed in 2020 and 2021 are eligible for a 26% tax credit. In August 2022, Congress passed an extension of the ITC, raising it to 30% for the installation of which was between 2022-2032.
Who qualifies for the advanced tax credit? ›Nearly all families with children qualify. Families will get the full amount of the Child Tax Credit if they make less than $150,000 (two parents) or $112,500 (single parent). There is no minimum income, so families who had little or no income in the past two years and have not filed taxes are eligible.
What is considered advanced manufacturing? ›Use of innovative technologies to create existing products and the creation of new products. Advanced manufacturing can include production activities that depend on information, automation, computation, software, sensing, and networking.
What is the solar production tax credit for 2023? ›Residential solar installations were eligible for a tax credit claim against the project expenditures and subject to a phase-out, with maximum credit of 26% in 2020-2022, which dropped to 22% in 2023, and then 0% in 2024 and thereafter.
What is the advanced manufacturing production tax credit? ›It provides a 6% base credit and a 5x multiplier for taxpayers that meet certain wage and apprenticeship requirements to be eligible for the full bonus credit amount of 30% of taxpayers' eligible capital investments, including those aimed at re-equipping, expanding, or establishing an industrial or manufacturing ...
Is production tax credit refundable? ›The entity can then claim a refund for the excess taxes they are deemed to have paid. The option effectively makes this tax credit refundable for these entities. The act also allows eligible taxpayers to transfer all or a portion of their eligible tax credits to an unrelated taxpayer.
How do I qualify for the American Opportunity tax credit? ›To claim the full credit, your modified adjusted gross income (MAGI) must be $80,000 or less ($160,000 or less for married filing jointly). You receive a reduced amount of the credit if your MAGI is over $80,000 but less than $90,000 (over $160,000 but less than $180,000 for married filing jointly).
How can I avoid paying back my premium tax credit? ›
The easiest way to avoid having to repay a credit is to update the marketplace when you have any life changes. Life changes influence your estimated household income, your family size, and your credit amount. So, the sooner you can update the marketplace, the better. This ensures you receive the correct amount.
How do I know if I qualify for ACTC? ›The Child Tax Credit and the Additional Child Tax Credit are meant to help working parents with low to moderate incomes. For that reason, families must have a minimum of $2,500 of earned income to claim the ACTC. Earned income can come from salaries and wages, self-employment, and some disability payments.
What does advance tax credit mean? ›A tax credit you can take in advance to lower your monthly health insurance payment (or “premium”).
Why do I have an AMT credit? ›The alternative minimum tax (AMT) credit is a reduction given to individuals who have paid alternative minimum tax in previous years. Often times AMT is triggered by exercising Incentive Stock Options (ISOs), thus anyone who has exercised ISOs in years past may be eligible for AMT credits.
What is an advanced tax credit? ›The Advanced Premium Tax Credit is provided to those who qualify to help pay for health coverage. Your APTC is calculated based on your estimated annual household income, household size and where you live. If your income or family size changes, this may impact the APTC you receive.
How does the advanced CTC work? ›What are advance Child Tax Credit payments? (updated May 20, 2022) A1. Advance Child Tax Credit payments are early payments from the IRS of 50 percent of the estimated amount of the Child Tax Credit that you may properly claim on your 2021 tax return.
What is the AMT exemption for 2023? ›The AMT exemption has increased to $81,300 for single filers in 2023 (up from $75,900 in 2022). For those who are married and filing jointly, the AMT is $126,500 in 2023 (up from $118,000 in 2022). The phase-out for those married filing jointly in 2023 begins at $1,156,300.
What is the max AMT credit? ›$95,200 is the most AMT credit we can use for the taxable year. If we have remaining AMT credit, we can carry it forward and use it for future years.
How do I avoid Alternative Minimum Tax? ›A good strategy for minimizing your AMT liability is to keep your adjusted gross income (AGI) as low as possible. Some options: Participate in a 401(k), 403(b), SARSEP, 457(b) plan, or SIMPLE IRA by making the maximum allowable salary deferral contributions.