The Treasury Department and the Internal Revenue Service proposed new rules for the tax credit for qualified commercial clean vehicles, along with guidance on claiming tax credits for clean fuel under the Inflation Reduction Act.

The Notice of Proposed Rulemaking on the credit for qualified commercial clean vehicles (under Section 45W of the Tax Code) says the credit can be claimed by purchasing and placing in service qualified commercial clean vehicles, including certain battery electric vehicles, plug-in hybrid EVs, fuel cell electric vehicles and plug-in hybrid fuel cell electric vehicles.  

The credit is the lesser amount of either 30% of the vehicle’s basis (15% for plug-in hybrid EVs) or the vehicle’s incremental cost in excess of a vehicle comparable in size or use powered solely by gasoline or diesel. A credit up to $7,500 can be claimed for a single qualified commercial clean vehicle for cars and light-duty trucks (with a Gross Vehicle Weight Rating of less than 14,000 pounds), or otherwise $40,000 for vehicles like electric buses and semi-trucks (with a GVWR equal to or greater than 14,000 pounds).

“The release of Treasury’s proposed rules for the commercial clean vehicle credit marks an important step forward in the Biden-Harris Administration’s work to lower transportation costs and strengthen U.S. energy security,” said U.S. Deputy Secretary of the Treasury Wally Adeyemo in a statement Friday. “Today’s guidance will provide the clarity and certainty needed to grow investment in clean vehicle manufacturing.”

The NPRM issued today proposes rules to implement the 45W credit, including proposing various pathways for taxpayers to determine the incremental cost of a qualifying commercial clean vehicle for purposes of calculating the amount of 45W credit. For example, the NPRM proposes that taxpayers can continue to use the incremental cost safe harbors such as those set out in Notice 2023-9 and Notice 2024-5, may rely on a manufacturer’s written cost determination to determine the incremental cost of a qualifying commercial clean vehicle, or may calculate the incremental cost of a qualifying clean vehicle versus an internal combustion engine (ICE) vehicle based on the differing costs of the vehicle powertrains.

The NPRM also proposes rules regarding the types of vehicles that qualify for the credit and aligns certain definitional concepts with those applicable to the 30D and 25E credits. In addition, the NPRM proposes that vehicles are only eligible if they are used 100% for trade or business, excepting de minimis personal use, and that the 45W credit is disallowed for qualified commercial clean vehicles that were previously allowed a clean vehicle credit under 30D or 45W. 

The notice asks for comments over the next 60 days on the proposed regulations such as issues related to off-road mobile machinery, including approaches that might be adopted in applying the definition of mobile machinery to off-road vehicles and whether to create a product identification number system for such machinery in order to comply with statutory requirements. A public hearing is scheduled for April 28, 2025.

Clean Fuels Production Credit

The Treasury the IRS also released guidance Friday on the Clean Fuels Production Credit under Section 45Z of the Tax Code.

Section 45Z provides a tax credit for the production of transportation fuels with lifecycle greenhouse gas emissions below certain levels. The credit is in effect in 2025 and is for sustainable aviation fuel and non-SAF transportation fuels.

The guidance includes both a notice of intent to propose regulations on the Section 45Z credit and a notice providing the annual emissions rate table for Section 45Z, which refers taxpayers to the appropriate methodologies for determining the lifecycle GHG emissions of their fuel. In conjunction with the guidance released Friday, the Department of Energy plans to release the 45ZCF-GREET model for use in determining emissions rates for 45Z in the coming days.

“This guidance will help put America on the cutting-edge of future innovation in aviation and renewable fuel while also lowering transportation costs for consumers,” said Adeyemo in a statement. “Decarbonizing transportation and lowering costs is a win-win for America.”

Section 45Z provides a per-gallon (or gallon-equivalent) tax credit for producers of clean transportation fuels based on the carbon intensity of production. It consolidates and replaces pre-Inflation Reduction Act credits for biodiesel, renewable diesel, and alternative fuels, and an IRA credit for sustainable aviation fuel. Like several other IRA credits, Section 45Z requires the Treasury to establish rules for measuring carbon intensity of production, based on the Clean Air Act’s definition of “lifecycle greenhouse gas emissions.”

The guidance offers more clarity on various issues, including which entities and fuels are eligible for the credit, and how taxpayers determine lifecycle emissions. Specifically, the guidance outlines the Treasury and the IRS’s intent to define key concepts and provide certain rules in a future rulemaking, including clarifying who is eligible for a credit.

The Treasury and the IRS intend to provide that the producer of the eligible clean fuel is eligible to claim the 45Z credit. In keeping with the statute, compressors and blenders of fuel would not be eligible.

Under Section 45Z, a fuel must be “suitable for use” as a transportation fuel. The Treasury and the IRS intend to propose that 45Z-creditable transportation fuel must itself (or when blended into a fuel mixture) have either practical or commercial fitness for use as a fuel in a highway vehicle or aircraft. The guidance clarifies that marine fuels that are otherwise suitable for use in highway vehicles or aircraft, such as marine diesel and methanol, are also 45Z eligible.

Specifically, this would mean that neat SAF that is blended into a fuel mixture that has practical or commercial fitness for use as a fuel would be creditable. Additionally, natural gas alternatives such as renewable natural gas would be suitable for use if produced in a manner such that if it were further compressed it could be used as a transportation fuel.

Today’s guidance publishes the annual emissions rate table that directs taxpayers to the appropriate methodologies for calculating carbon intensities for types and categories of 45Z-eligible fuels.

The table directs taxpayers to use the 45ZCF-GREET model to determine the emissions rate of non-SAF transportation fuel, and either the 45ZCF-GREET model or methodologies from the International Civil Aviation Organization (“CORSIA Default” or “CORSIA Actual”) for SAF.

Taxpayers can use the Provisional Emissions Rate process to obtain an emissions rate for fuel pathway and feedstock combinations not specified in the emissions rate table when guidance is published for the PER process. Guidance for the PER process is expected at a later date.

Outlining climate smart agriculture practices

The guidance released Friday states that the Treasury intends to propose rules for incorporating the emissions benefits from climate-smart agriculture (CSA) practices for cultivating domestic corn, soybeans, and sorghum as feedstocks for SAF and non-SAF transportation fuels. These options would be available to taxpayers after Treasury and the IRS propose regulations for the section 45Z credit, including rules for CSA, and the 45ZCF-GREET model is updated to enable calculation of the lifecycle greenhouse gas emissions rates for CSA crops, taking into account one or more CSA practices.    

CSA practices have multiple benefits, including lower overall GHG emissions associated with biofuels production and increased adoption of farming practices that are associated with other environmental benefits, such as improved water quality and soil health. Agencies across the Federal government have taken important steps to advance the adoption of CSA. In April, Treasury established a first-of-its-kind pilot program to encourage CSA practices within guidance on the section 40B SAF tax credit. Treasury has received and continues to consider substantial feedback from stakeholders on that pilot program. The U.S. Department of Agriculture invested more than $3 billion in 135 Partnerships for Climate-Smart Commodities projects. Combined with the historic investment of $19.5 billion in CSA from the Inflation Reduction Act, the department is estimated to support CSA implementation on over 225 million acres in the next 5 years as well as measurement, monitoring, reporting, and verification to better understand the climate impacts of these practices.

In addition, in June, the U.S. Department of Agriculture published a Request for Information requesting public input on procedures for reporting and verification of CSA practices and measurement of related emissions benefits, and received substantial input from a wide array of stakeholders. The USDA is currently developing voluntary technical guidelines for CSA reporting and verification. The Treasury and the IRS expect to consider those guidelines in proposing rules recognizing the benefits of CSA for purposes of the Section 45Z credit.

The Treasury Department and the Internal Revenue Service issued proposed regulations Friday for several provisions of the SECURE 2.0 Act, including ones related to automatic enrollment in 401(k) and 403(b) plans, and the Roth IRA catchup rule.

SECURE 2.0 Act passed at the end of 2022 and contained an extensive list of provisions related to retirement planning, like the original SECURE Act of 2019, with some being phased in over five years.

One set of proposed regulations involves provisions requiring newly-created 401(k) and 403(b) plans to automatically enroll eligible employees starting with the 2025 plan year. In general, unless an employee opts out, a plan needs to automatically enroll the employee at an initial contribution rate of at least 3% of the employee’s pay and automatically increase the initial contribution rate by one percentage point each year until it reaches at least 10% of pay. The requirement generally applies to 401(k) and 403(b) plans established after Dec. 29, 2022, the date the SECURE 2.0 Act became law, with exceptions for new and small businesses, church plans and governmental plans.

The proposed regulations include guidance to plan administrators for properly implementing this requirement and are proposed to apply to plan years that start more than six months after the date that final regulations are issued. Before the final regulations are applicable, plan administrators need to apply a reasonable, good faith interpretation of the statute.

Roth IRA catchup contributions

The Treasury and the IRS also issued proposed regulations Friday addressing several SECURE 2.0 Act provisions involving catch-up contributions, which are additional contributions under a 401(k) or similar workplace retirement plan that generally are allowed with respect to employees who are age 50 or older.

That includes proposed rules related to a provision requiring that catch-up contributions made by certain higher-income participants be designated as after-tax Roth contributions.

The proposed regulations provide guidance for plan administrators to implement and comply with the new Roth catch-up rule and reflect comments received in response to Notice 2023-62, issued in August 2023. 

The proposed regulations also provide guidance relating to the increased catch-up contribution limit under the SECURE 2.0 Act for certain retirement plan participants. Affected participants include employees between the ages of 60-63 and employees in newly established SIMPLE plans.

The IRS and the Treasury are asking for comments on both sets of proposed regulations. 

The Internal Revenue Service said tax season will begin on Monday, Jan. 27, 2025, with newly expanded and improved tools available.

The IRS anticipates over 140 million individual tax returns for tax year 2024 will be filed ahead of the Tuesday, April 15 federal deadline. Over half of all tax returns are expected to be filed this year with the help of a tax professional, and the IRS is urging taxpayers to use a trusted tax professional to avoid potential scams and schemes.

The IRS is also planning to open its new Direct File program on Jan. 27, even though the program has come under attack from Republicans in Congress. On the first day of the filing season, Direct File will open to eligible taxpayers in 25 states to file their taxes directly with the IRS for free: 12 states that were part of the pilot last year, plus 13 new states where Direct File will be available in 2025. During last year’s pilot, Direct File was available in Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington State and Wyoming. For the 2025 tax filing season, Direct File will also be available in Alaska, Connecticut, Idaho, Illinois, Kansas, Maine, Maryland, New Jersey, New Mexico, North Carolina, Oregon, Pennsylvania and Wisconsin.

In addition to covering taxpayers claiming the standard deduction and deductions for student loan interest and educator expenses, this year, Direct File will support taxpayers claiming deductions for Health Savings Accounts. The Treasury Department estimates that more than 30 million taxpayers will be eligible to use Direct File across the 25 states.

The 2025 tax season will reflect continued IRS progress to modernize and add new tools and features to help taxpayers. Since last tax season, improvements include more access to tax account information from text and voice virtual assistants, expanded features on the IRS Individual Online Account, more access to dozens of tax forms through cell phones and tablets and expanded alerts for scams and schemes that threaten taxpayers.

Direct File will include new features this year. A data import tool will allow taxpayers to opt-in to automatically import data from their IRS account, including personal information, the taxpayer’s IP PIN and some information from the taxpayer’s W-2. Also, this year, Direct File will cover more tax situations. During the pilot, Direct File supported taxpayers claiming the Earned Income Tax Credit, Child Tax Credit and Credit for Other Dependents. This year, Direct File will also cover taxpayers claiming the   Child and Dependent Care Credit, Premium Tax Credit, Credit for the Elderly and Disabled, and Retirement Savings Contribution Credits.

“It’s important for everyone to realize that the filing season improvements we’re highlighting today, and many others, are all a reflection of our ongoing work to modernize our agency and the interactions that taxpayers have with us,” said IRS Commissioner Danny Werfel during a press conference Friday. “The multiyear funding provided by Congress continues to drive changes across the IRS, and taxpayers will continue to see this work in the months and years ahead.”

He predicted taxpayers would see a continuing improvement in the IRS in 2025 and beyond. “Brick by brick, or online tool by online tool, we are building a modern interface with taxpayers and tax professionals,” said Werfel. “We are moving steadily to accelerate these technology advancements for the benefit of everyone. These efforts are all about making the process of filing taxes easier and less stressful for taxpayers and also making it more cost efficient.”

Werfel made a case for continuing IRS funding as the agency faces the prospect of $20 billion in budget cuts as a result of the continuing resolution that Congress passed to keep the government open. Werfel said it should not be a partisan issue to provide continued funding for the IRS. He declined to answer questions about whether he has had any conversations with former Rep. Billy Long, who has been named as the next IRS commissioner by President-elect Trump, even though Werfel’s term doesn’t end until November 2027. Asked how long he plans to remain at the IRS, he insisted he has remained “laser focused” on his job and preparing for filing season.

“I spend every waking hour during the day and, quite frankly, at night, focused on one thing and one thing only, and that’s getting ready for this filing season,” said Werfel. “That has consumed all of my energy, and that is my sole focus.”

He stressed the need for Congress to provide continued funding for the IRS. “Thanks to the efforts of employees throughout the agency, we have a great deal of momentum right now on many improvements for taxpayers, more tools, more simplicity, less stress, less burden,” said Werfel. “That momentum is important because we still have a long way to go. Our ultimate goal is to have an IRS where all taxpayers can meet all of their responsibilities, including interactions with us, from questions to payments to resolutions in a completely digital manner if they prefer. For the IRS to continue to succeed, we must ensure we provide our employees with the right training and tools, as well as a modern technology infrastructure to help taxpayers. These are essential to allow the IRS to continue its modernization work to serve the nation today and in the future, and so our ability to continue making progress on all these fronts can only happen if the IRS receives a consistent, reliable funding stream. We also should not lose sight of the fact that we have accomplished so much on this journey to modernize our agency and improve service to taxpayers with the multiyear funding Congress has provided. The decision about whether to adequately fund the agency comes down to a fundamental choice, whether or not we can and should have an IRS that you can easily interact with to help meet your tax responsibilities, that can quickly and effectively address tax scams that exploit vulnerable populations, and that can deliver updated IT infrastructure and modern technology platforms capable of supporting our work to modernize the agency. For the IRS to be able to do all these things, adequate stable funding is essential, and we will continue making our case to Congress.”  

Although the IRS won’t start accepting tax returns until Jan. 27, starting today, nearly everyone can file electronically for free by using IRS Free File, available via IRS.gov. Now in its 23rd year, Free File includes free tax preparation software from eight companies in the public-private partnership between the IRS and Free File Inc. As part of this partnership, tax preparation and filing software partners offer their online products to eligible taxpayers for free. To access these tools, taxpayers should start from the IRS Free File page on IRS.gov.