This guidance marks the end of the first phase of the Treasury Department’s implementation of the Inflation Reduction Act’s clean energy provisions.
The U.S. Treasury Department has released proposed guidelines for prevailing wage and apprenticeship requirements as part of the agency’s implementation of the Inflation Reduction Act.
The Inflation Reduction Act’s prevailing wage and registered apprenticeship requirements apply to many of the clean energy deployment tax incentives under the law, including for the clean energy investment and production tax credits that help finance utility-scale wind, solar, and battery storage projects as well as for the credits for carbon capture, utilization, and storage and clean hydrogen projects. If the prevailing wage and registered apprenticeship requirements are satisfied, a taxpayer can claim an enhanced credit or deduction equal to up to five times the value of the regular credit or deduction.
While prevailing wage and apprenticeship requirements have existed for more than 100 years and have long applied to projects supported by federal contracts, the Inflation Reduction Act applied these requirements to clean energy tax incentives for the first time. The requirements have been in effect since January 29, 2023—60 days after Treasury and the IRS released initial guidance—but the proposed rules in the Notice of Proposed Rulemaking (NPRM) released Aug. 31 would provide employers and workers with more clarity and direction on proposed IRS guardrails, incentivize employers to adopt worker-centric practices, and ensure compliance is streamlined, Treasury said.
Importantly, the Treasury Department’s guidance, which was developed in consultation with the U.S. Department of Labor, contains new proposed rules regarding how to correct failures to meet the requirements and substantiate compliance to ensure workers are well-paid and expand the clean energy workforce. The proposed rules would also provide incentives for taxpayers to use qualifying Project Labor Agreements that meet certain criteria to meet the prevailing wage and apprenticeship requirements, enabling this well-established tool to be used more extensively in the clean energy industry.
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This guidance marks the end of the first phase of the Treasury Department’s implementation of the Inflation Reduction Act’s clean energy provisions, along with proposed rules and other guidance on the consumer clean vehicle credit, the energy communities bonus, the domestic content bonus, the low-income communities allocated bonus, and direct pay and transferability. These provisions represent the core elements needed to accelerate significant economic and climate benefits and to provide clarity and certainty to companies and other entities planning investments and projects.
For most Inflation Reduction Act incentives, including the Production Tax Credit, the Investment Tax Credit, and the credits for Carbon Oxide Sequestration and Clean Hydrogen, taxpayers will need to meet both prevailing wage and registered apprenticeship requirements to receive the increased credit or deduction amount.
Inflation Reduction Act prevailing wage requirement
The Inflation Reduction Act’s prevailing wage provision incentivizes taxpayers to pay prevailing wages to the construction workers building clean energy projects. To maximize the value of the Inflation Reduction Act’s clean energy tax credits, taxpayers must ensure that laborers and mechanics employed in the construction, alteration, or repair of a qualified facility be paid at least the prevailing wage based on the geographic area and the type of work performed, as determined under Department of Labor rules.
The proposed rules in the NPRM would provide detail on statutory cure and penalty provisions which would help ensure timely correction of any issues and incentivize the use of Project Labor Agreements when building clean energy projects. These provisions would provide additional detail on the statutory rules that require taxpayers to cure failures to satisfy prevailing wage requirements by making correction payments (including back pay and interest) to workers and paying penalties to the IRS in order to receive the full incentive amounts.
The proposed rule would waive penalties under (1) a de minimis exception, if the correction payment is made by the earlier of 30 days after the taxpayer became aware of the error, or the date on which the increased credit or deduction is claimed; and (2) a groundbreaking new Project Labor Agreement exception, which would apply to work done under a “Qualifying Project Labor Agreement” and where the correction payment is made by the time the increased credit or deduction is claimed.
At the same time, taxpayers must pay greater penalties if they intentionally disregard prevailing wage requirements and try to claim increased incentive amounts.
Inflation Reduction Act apprenticeship requirement
Taxpayers must ensure that qualified apprentices—workers participating in a registered apprenticeship program—perform a certain number of labor hours in the construction, alteration, or repair of their qualified project or facility. The labor hours requirement provides that a minimum percentage—12.5% for facilities beginning construction in 2023, 15% for facilities beginning construction in 2024 and after—of the total labor hours for a project must be performed by qualified apprentices.
There is also a ratio requirement, which ensures that there are sufficient experienced workers to oversee apprentices, and a participation requirement, which encourages taxpayers, contractors, and subcontractors to utilize apprentices across the full range of work performed, rather than limiting them to one type of work. Taxpayers, contractors, and subcontractors that employ four or more individuals to perform construction, alteration, or repair work on a facility must employ at least one apprentice.
Treasury and the IRS will carefully consider public feedback before issuing final rules.
