What is the difference between Elective Pay and Transferability?

These provisions aim to provide flexibility for companies and individuals to fully benefit from tax credits, even if they don't have a tax liability to offset directly.

Elective Pay (Direct Pay):

• This allows eligible entities to receive the full value of the tax credit, even if they have little or no tax liability.
• The IRS treats the elective payment as a tax payment and once filed, it is considered an overpayment, which the IRS refunds to the entity.

Note: Elective pay is sometimes referred to as ‘Direct pay’ and is different from the IRS payment method, which is also called ‘Direct pay’.
 
Transferability:

• If an entity cannot use the elective pay option but qualifies for the tax credit, it can transfer the credit to a third party in exchange for cash.
• The terms and pricing of the credit transfer are negotiated between the buyer and seller.