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June 1, 2021

FIRST IMPRESSIONS | Biden FY 2022 Budget and Treasury Green Book have implications for federal tax incentives

President Biden's FY 2022 budget and the Treasury Green Book issued on May 28, 2021 (collectively, "Proposal") contains numerous tax credit and incentive provisions intended to encourage US investment, promote clean energy, sustainability and a green economy, and support American workers. Of note are the proposed:

  • New general business tax credit for onshoring jobs and business activity
  • New and enhanced tax credits for promoting clean energy, sustainability and a green economy

Unless otherwise noted, these provisions would be effective either immediately following enactment or beginning in 2022.

In this Alert, EY's Indirect Tax Practice shares its first impressions of the Proposal's implications for federal credits and incentives and sustainability. For discussion of the Proposal's effects on state income taxes, see Tax Alert 2021-9013; for an overview of the Proposal, see Tax Alert 2021-9010.

Encouraging US investment

General business credit for onshoring jobs and business activity (new): A proposed credit would equal 10% of eligible expenses incurred from onshoring a US business or its foreign affiliates. To be eligible for the new credit, a taxpayer would need to do the following:

  • Reduce the size of a business currently conducted outside the US
  • Expand or relocate that business to a location within the US
  • Create jobs in the US through that investment

Concurrently with the onshoring credit, the Proposal would disallow expense deductions from offshoring a US business when that activity reduces US jobs.

Federally subsidized state and local infrastructure bonds (new and expanded): A proposed school infrastructure bond program would grant states up to $16.7 billion per year (through 2024) in bond authority. Holders of these bonds would be eligible for credits or cash payments up to 100% of interest.

The Proposal also would increase and expand the SAFETEA-LU transportation bond program to $15 billion while adding the following as qualified activities: public transit, passenger rail and zero-emissions vehicle infrastructure.

Other proposed changes: Other proposed changes aimed at encouraging US investment include (new, expanded, and extended):

  • New neighborhood homes investment tax credit
  • Permanent extension of the new markets tax credit with expanded funding allocations
  • Expansion of the low-income housing tax credit

Promoting clean energy, sustainability and a green economy

Clean energy

Renewable electricity tax credits (extended and expanded): The Proposal would modify Internal Revenue Code (IRC) Sections 45, 48, 25D by:

  • Extending the IRC Section 45 production tax credit (PTC), the IRC Section 48 investment tax credit (ITC) and the IRC Section 25D residential energy efficiency property credit for an additional 10 years with a phaseout starting after the first five years
  • Expanding IRC Sections 48 and 25D to include stand-alone energy storage and qualified battery storage technologies and restoring both credits to 30% for eligible property

Production tax credit for low-carbon hydrogen (new): A proposed six-year PTC would provide a credit of $3 per kilogram for low-carbon hydrogen production from a qualified low-carbon hydrogen production facility, beginning on a facility's placed-in-service date.

Tax credit for medium- and heavy-duty zero-emissions vehicles (new): A proposed incentive for qualifying electric and fuel cell vehicles would provide a credit ranging from $25,000-$120,000, depending on the size and type of vehicle.

Tax credit for electricity transmission (new): The Proposal would adopt a 30% ITC for electric transmission property with a minimum voltage of 275 kilovolts and capacity of 500 megawatts placed in service from January 1, 2022 through December 31, 2031.

Fossil fuel production credits and deductions (repeal): The Proposal would eliminate multiple tax credits, deductions and other provisions for the oil and gas industry.


Qualifying advanced energy manufacturing tax credit (extended and expanded): The Proposal would extend for three years the IRC Section 48C credit for advanced energy manufacturing projects. The credit would be expanded to apply to industrial facilities; recycling; and other eligible technologies, including energy storage, electric grid modernization, carbon oxide sequestration, and energy conservation technologies.

Tax credit for carbon oxide sequestration (extended and enhanced): The Proposal would extend the IRC Section 45Q credit for five years and provide an enhanced credit for direct air capture projects and hard-to-abate emissions from activities such as cement production, steelmaking, hydrogen production and petroleum refining.

Other proposed changes (new and extended): Other proposed changes aimed at promoting clean energy, sustainability and a green economy include:

  • A new credit equal to 10% of labor costs incurred from installing mechanical insulation property, insulation materials, facings and accessory products
  • Extension and enhancement of benefits under IRC Sections 25C, 45L and 179D for homes and commercial buildings
  • Extension and expansion of the IRC Section 30C credit for alternative fuel vehicle refueling property by removing the "per-location" limitation and increasing the credit limit to $200,000 per device
  • A new PTC for sustainable aviation fuel production
  • A new PTC for electricity generation from eligible existing nuclear power facilities
  • Allocation of funding for state and local school bus electrification and clean energy implementation programs

Supporting American workers

The Proposal would also permanently extend the American Rescue Plan Act's changes to the earned income tax credit and the child and dependent care tax credit, enhance the existing IRC Section 45F employer-provided childcare credit, and create a new national paid family and medical leave program. The Proposal also emphasizes, without explanation, that the Administration will seek the pairing of tax incentives with strengthened labor standards.


The Proposal would substantially change federal credits and incentives. Many of the sustainability provisions would include a direct pay option in lieu of tax credits, which may provide an immediate benefit to companies unable to utilize tax credits. These incentives may benefit early movers and affect site-selection decisions for companies that can combine the proposed onshoring and sustainability incentives.

The Proposal also would increase the relevance of general business credits for taxpayers that would be affected by the new minimum tax on book income and the "SHIELD" (Stopping Harmful Inversions and Ending Low-tax Developments) rule.1 For example, taxpayers subject to the 15% minimum tax on book income could use general business credits to reduce that tax; unlike BEAT, SHIELD would not reduce the value of the taxpayer's general business credits.

The EY Indirect Tax practice will monitor Biden Administration and congressional activity on these proposed federal changes and provide up-to-date information on the implications of this federal activity for credits and incentives and the overarching need for continued sustainable investment.


Contact Information
For additional information concerning this Alert, please contact:
Indirect Tax & State/Local Policy
   • Scott Roberti (
   • Ali Master (
Credits and incentives and sustainability
   • Paul Naumoff (
   • Michael Bernier (
   • Akshay Honnatti (
   • Tim Parrish (


1 The proposed SHIELD rule would disallow certain deductions to domestic corporations and branches by reference to all gross payments made to group members in low-tax jurisdictions.