An Update on Energy Tax Credits for Schools
Last update: March 20, 2025
We will update this space as new information is available about the continued availability of Elective (Direct) Pay and energy tax credits for school infrastructure projects. For those interested in understanding the latest on other forms of federal funding for school infrastructure (e.g. grants), see our recommendations below for potential sources of information and support.
The new national Administration combined with Republican majorities in both houses of Congress represent a significant shift in the landscape. Following is our current understanding of the state of play for energy tax credits for schools.
The Key Takeaway
Energy tax credits remain available by law and elective payments are characterized as mandatory government spending.
We have received word that government entities have received checks (some with interest) dated January 29 suggesting that payments are still flowing from the Treasury for Elective Pay.
Energy Tax Credits and Elective Pay are Current Law
Energy tax credits and elective pay are set down in law and can only be repealed or changed through passage of a new law.
Unlike grants and many other forms of federal funding, elective payments are considered mandatory spending. (See page 13, item 015-45-0963 in this OMB report).
Elective payments are considered an overpayment of taxes and generate a required refund from the IRS.
Changes to Energy Tax Credits and Elective Pay Require Passage of a New Law
The leadership of the 119th Congress has indicated an intention to pass a new tax law (likely via reconciliation). Changes to energy tax credits are “on the menu” as Republican lawmakers shape a new tax law. This could include all out repeal of some credits, changes to the level of credit available, the dates at which these tax credits sunset, or the availability of bonus adders (e.g. energy communities, domestic content).
Support for preserving energy tax credits has emerged among some Republicans. On March 9, 2025, 21 Republican lawmakers signed a letter backing their continuation, and on August 6, 2024, 18 Republicans expressed similar support.
Look out for ongoing news coverage of the discussion among Republicans about the future of energy tax credits.
Impact of Day 1 Executive Orders and OMB M-25-13 on Energy Tax Credits
On January 20, President Trump issued an Executive Order entitled, “Unleashing American Energy”. The EO language reads:
“Sec. 7. Terminating the Green New Deal. (a) All agencies shall immediately pause the disbursement of funds appropriated through the Inflation Reduction Act of 2022 (Public Law 117-169) or the Infrastructure Investment and Jobs Act (Public Law 117-58),…”
A key term here is the word “appropriated”. We understand this to mean annual, discretionary appropriations. Elective payments for energy tax credits are considered mandatory spending and are not subject to annual appropriations.
On January 27, OMB Acting Director, Matthew J. Vaeth issued a memorandum entitled, “Temporary Pause of Agency Grant, Loan, and Other Financial Assistance”. Accompanying this memo was a list of “federal financial assistance programs” slated for review in connection with this temporary pause. This list includes “Energy investment credit”, “Tax credit for clean vehicles” and “Tax credits for clean fuel burning vehicles and refueling property” (see page 41, items TC-023, TC-031, and TC-033). We hypothesize that these refer respectively to the Clean Electricity Investment Credit, the Clean Commercial Vehicle Credit and the Alternative Fuel Vehicle Refueling Property Credit.
The Tax Law Center at NYU Law’s recent post entitled, “The disbursement pause in the Executive Order (EO) titled “Unleashing American Energy” should have no impact on tax credits” suggests that if payments are substantially delayed, entities may be due interest payments from the IRS.
Assessing Risk and Managing Projects in Uncertainty
If Congress passes a new law enacting changes to energy tax credits, certain projects already underway may still be eligible to claim and receive elective payments.
The effective date of any new law is likely to be the start of a new tax year – January 1, 2026. Historically, projects that have commenced construction before the effective date of a new policy have been protected against those changes.
Districts pursuing projects today can reduce the risk associated with this funding by commencing construction on eligible projects as soon as possible.
There is no guarantee that these historical precedents will hold. Moreover, there are other non-legal, but practical considerations which could delay or impact the availability of elective payments for schools.
All communities must assess the risk for themselves. States can consider providing additional supports to ensure that clean energy projects can continue at schools.
Other Types of Federal Funding
Other sources of federal funding (such as grants and loans) are governed by different dynamics. We expect the future of that funding to be determined on a program-by-program basis and even a case-by-case basis.
We recommend that school districts take stock of current federal funding expectations and engage counsel where appropriate to pursue action.
Below are additional resources for learning and accessing support.
Sign up for updates from The Environmental Protection Network’s Updates on Federal Funding.
Request assistance from the Lawyers for Good Government’s Fund Protection Clinic.
Become a member of the BASIC Coalition to receive updates on federal actions affecting school infrastructure.
Subscribe to the NYU Tax Law Center’s newsletter.
This post represents our best understanding of certain tax provisions for general informational purposes only and is not itself tax guidance. Please consult qualified tax professionals about your specific circumstances and refer to guidance issued by the IRS for detailed information on the rules associated with energy tax credits, elective pay, and other relevant tax provisions.
Updated: March 20, 2025
