What Is the 45Q Tax Credit for Carbon Sequestration?

The 45Q tax credit for carbon sequestration is a federal income tax credit that pays project owners between $12 and $180 for every metric ton of carbon oxide they capture and either store underground or put to a qualifying commercial use. The exact rate depends on three things: whether the carbon is stored geologically or utilized, whether it was pulled from ambient air or from an industrial exhaust stream, and whether the project meets federal prevailing wage and apprenticeship standards. The credit runs for 12 years from the date the capture equipment is placed in service and is claimed annually on Form 8933.

Which Facilities Qualify

Three types of facilities can earn the credit, each with a different minimum capture threshold. Electric generating facilities must capture at least 18,750 metric tons of carbon oxide per year and be designed to capture at least 75 percent of their baseline emissions. Industrial facilities that do not generate electricity have to capture at least 12,500 metric tons annually. Direct air capture (DAC) facilities, which pull carbon out of ambient air rather than from a smokestack, have the lowest threshold at 1,000 metric tons per year.¹

Construction on the facility must begin before January 1, 2033, and the facility must either start building capture equipment before that date or include the equipment in its original design.¹ Once captured, the carbon oxide has to end up in permanent geological storage (deep saline formations, oil and gas reservoirs, or unminable coal seams) or be used commercially in a way that keeps it out of the atmosphere. The captured amount is measured at the point of capture and verified again at the point of disposal, injection, or use.

How Much the Credit Pays

The headline dollar figures you see quoted for 45Q are bonus rates. They apply only to projects that satisfy prevailing wage and apprenticeship rules. A project that skips those labor standards receives one-fifth of the bonus rate for the entire 12-year credit period. The gap between the two tiers is the single biggest financial decision in a 45Q project.

For carbon capture equipment placed in service after 2022 at a facility where construction begins before 2033, the per-metric-ton amounts are:

Geological storage from a non-DAC facility: $85 with labor standards met, $17 without.
Utilization or enhanced oil recovery from a non-DAC facility: $60 with labor standards met, $12 without.
DAC with geological storage: $180 with labor standards met, $36 without.
DAC with utilization: $130 with labor standards met, $26 without.¹

These amounts hold through the 2026 tax year. For calendar years after 2026, the IRS will adjust them for inflation using the GNP implicit price deflator.¹ Older equipment placed in service before the 2018 statutory overhaul uses lower base amounts ($20 per metric ton for storage, $10 for utilization) that are adjusted annually for inflation; for the 2025 tax year those figures are $28.43 and $14.21.²

Prevailing Wage and Apprenticeship Rules

Because the labor standards drive an 80 percent swing in credit value, the specifics matter. Every laborer and mechanic working on the construction, alteration, or repair of the facility must be paid at least the locally prevailing wage rate as determined by the Department of Labor. A minimum share of total construction labor hours must also be performed by qualified apprentices from registered apprenticeship programs. That apprenticeship share phased in at 10 percent for construction beginning before 2023, 12.5 percent for 2023, and 15 percent for 2024 and later.³

Missing the standards does not automatically drop a project to the base rate. Treasury regulations allow a cure. For prevailing wage failures, the taxpayer pays $5,000 per affected worker for the period of underpayment, plus the wage difference; if the IRS finds the underpayment was intentional, that per-worker amount doubles to $10,000. For apprenticeship shortfalls, the cure is $50 per labor hour below the required ratio, rising to $500 per hour for intentional failures.⁴ On a large project those payments add up, but they beat losing four-fifths of the credit.

How Long the Credit Lasts

The credit period is 12 years from the date the carbon capture equipment is originally placed in service.¹ The clock attaches to the equipment, not the facility. If a facility later replaces or adds capture equipment, that new equipment starts its own 12-year window. The credit is claimed each year based on the metric tons captured during that taxable year.

Who Claims the Credit

The default claimant is the entity that owns the carbon capture equipment and makes sure the carbon oxide is captured and then stored or utilized. Because most 45Q projects involve more than one party, the rules create three additional pathways for putting the credit in the hands of someone else.

Election to the Party That Disposes of the Carbon

The equipment owner can elect to let the party that actually disposes of the carbon oxide (the entity holding the disposal or injection permit) claim some or all of the credit. This election under Section 45Q(f)(3)(B) is made annually on Form 8933, and both parties have to include cross-referenced information (taxpayer identification numbers, metric tons, and dollar amounts) on their respective filings. If either side leaves out the required information for a year, neither can claim the credit for that year.⁵ The election is not available to a contractor or subcontractor that merely performs the physical capture work.

Selling the Credit

Under Section 6418, a taxpayer can sell all or part of a 45Q credit to an unrelated buyer for cash. The buyer then claims the credit on their own return. Payment must be made in cash no later than the earlier of the seller’s or buyer’s return due date for the year the credit arises.⁶ Both parties have to complete a pre-filing registration through the IRS electronic portal, which produces a registration number that then appears on the tax forms.⁷

Direct Pay

Tax-exempt organizations, state and local governments, tribal governments, rural electric cooperatives, and similar entities can elect to receive the credit as a direct cash payment from the IRS rather than as an offset against tax owed. For these applicable entities the election covers the full 12-year credit period and is irrevocable. Taxable corporations can also use direct pay for 45Q, but only for five consecutive years per eligible piece of credit property, with one allowed revocation during that window.⁸

What Happens If the Carbon Leaks

The credit is contingent on the carbon staying put. If sequestered carbon oxide escapes back into the atmosphere, the IRS can recapture credits using a three-year lookback. Leaked amounts are attributed on a last-in, first-out basis: first to the most recent taxable year, then the year before, and so on, up to three years back.⁹

When a leak is identified, the taxpayer or their contractor has to quantify the escaped metric tons using EPA’s Subpart RR requirements or the ISO 27916 standard (the ISO route requires certification by a qualified independent engineer or geologist). The recapture amount, the leaked quantity, the original credit rates, and a description of how the leak was found all go on Form 8933 for the year of the leak. The IRS may check the reported amounts against the relevant regulatory agency’s records.⁹

Interaction With the Clean Hydrogen Credit

If your facility produces hydrogen, 45Q and the Section 45V clean hydrogen credit cannot both apply to the same facility. Once capture equipment at a hydrogen facility has generated a 45Q credit for any taxpayer in any year, the facility is locked out of 45V.¹⁰ A narrow exception exists for a substantial retrofit under the 80/20 rule, where at least 80 percent of the facility’s value after the retrofit comes from new components and no 45Q credit has ever been claimed on the new equipment.

Documentation You Have to Keep

Every 45Q claim requires Form 8933 showing the total metric tons captured during the tax year, broken out by storage method. The supporting evidence differs by project type.

Geological Storage

Projects using Class VI injection wells for dedicated geological storage have to comply with EPA’s Subpart RR monitoring and reporting requirements. Projects using Class II wells for enhanced oil recovery can follow either Subpart RR or ISO 27916. Facilities placed in service before February 9, 2018, need a Monitoring, Reporting, and Verification plan formally approved by EPA before any credit can be claimed.¹¹

Utilization Projects

When captured carbon is commercially used, the taxpayer has to submit a Lifecycle Analysis showing the process achieves a net reduction in emissions. The LCA has to follow ISO 14040 and ISO 14044 and be performed or verified by an independent third party who holds a valid U.S. or foreign professional license and signs an affidavit of independence under penalty of perjury.¹² The Department of Energy reviews the LCA and issues a displacement factor that determines how many metric tons of credit the project ultimately earns.

How to File

Form 8933 is attached to the federal income tax return (or Form 1065 for partnerships) and filed by the return due date, including extensions. If the credit was missed on the original return, an amended return is allowed.¹¹

Taxpayers using direct pay or transferring credits have extra steps. Pre-filing registration is required on the IRS electronic portal for each facility and each credit year, and the resulting registration number must appear on both Form 8933 and Form 3800 (General Business Credit). The IRS recommends registering at least 120 days before the return due date, and registration has to be renewed every year for each facility.⁷ When the contractual election is used to shift the credit to a disposal partner, both the equipment owner and the credit claimant file their own Form 8933 with cross-referenced information, and the equipment owner has to provide a copy of their completed Form 8933 to each claimant.⁵ Missing any of these filing steps in a given year forfeits the credit for that year, with no retroactive fix.

1
Office of the Law Revision Counsel. 26 USC 45Q Credit for Carbon Oxide Sequestration
2
Internal Revenue Service. Internal Revenue Bulletin 2025-20
3
Internal Revenue Service. Frequently Asked Questions About the Prevailing Wage and Apprenticeship Under the Inflation Reduction Act
4
eCFR. Title 26 Chapter I Subchapter A Part 1 – Rules for Computing Credit for Investment in Certain Depreciable Property
5
eCFR. 26 CFR 1.45Q-1 – Credit for Carbon Oxide Sequestration
6
Federal Register. Transfer of Certain Credits
7
Internal Revenue Service. Register for Elective Payment or Transfer of Credits
8
Internal Revenue Service. Elective Pay and Transferability Frequently Asked Questions – Elective Pay
9
eCFR. 26 CFR 1.45Q-5 – Recapture of Credit
10
eCFR. 26 CFR 1.45V-2 – Special Rules
11
Internal Revenue Service. Instructions for Form 8933
12
eCFR. 26 CFR 1.45Q-4 – Utilization of Qualified Carbon Oxide