The Inflation Reduction Act of 2022 (IRA) amended and enacted various clean energy tax incentives that provide increased credit or deduction amounts if certain prevailing wage and registered apprenticeship requirements are met. Treasury and the IRS published final regulations on June 25, 2024, providing rules and definitions for taxpayers seeking to satisfy the prevailing wage and apprenticeship requirements. These frequently asked questions and answers are based on the final regulations.
The final regulations amend the Income Tax Regulations (26 CFR part 1) under sections 30C, 45, 45L, 45Q, 45U, 45V, 45Y, 45Z, 48C, and 179D of the Internal Revenue Code (Code). The final regulations do not finalize proposed regulations under sections 48 and 48E. Treasury and the IRS intend to issue final regulations with respect to the prevailing wage and apprenticeship requirements under sections 48 and 48E in future Treasury decisions. In general, Treasury and the IRS do not provide personalized tax advice regarding whether a specific organization's project or activity is eligible for a tax credit. For more information about clean energy tax credits and deductions available under the IRA, see Credits and deductions under the Inflation Reduction Act of 2022. You may also choose to consult with a tax advisor.
A1. The IRA makes several clean energy tax incentives available to taxpayers that satisfy certain prevailing wage and apprenticeship requirements. In general, a taxpayer that meets the prevailing wage and apprenticeship requirements with respect to a qualified facility, project, property, or equipment, as applicable (referred to generally in these FAQs as a facility) will multiply the base amount of the tax incentive (credit or deduction) by five.
Increased credit and deduction amounts are available for taxpayers satisfying prevailing wage and apprenticeship requirements under the following sections of the Code:
Increased credit amounts are available for taxpayers satisfying prevailing wage requirements under:
A2. The prevailing wage requirements of the IRA provide that taxpayers must ensure that all laborers and mechanics employed by the taxpayer (or any contractor or subcontractor) on the construction, alteration, or repair of a qualified facility are paid wages at rates that are not less than the prevailing rates determined by the Department of Labor in accordance with subchapter IV of chapter 31 of title 40 of the U.S. Code (the Davis-Bacon Act) for the type of work performed in the geographic area of the facility.
A3. The apprenticeship requirements of the IRA include three components — a labor hours requirement, a ratio requirement, and a participation requirement. Under the labor hours requirement, the taxpayer must ensure that a minimum percentage of the total labor hours performed on the construction, alteration, or repair of a facility are performed by qualified apprentices from a registered apprenticeship program. The applicable percentage is 10% for construction beginning before 2023, 12.5% for construction beginning in 2023, and 15% for construction beginning in 2024 or after. Under the ratio requirement, the taxpayer must ensure that the applicable ratio of apprentices to journeyworkers established by the registered apprenticeship program are met for apprentices working on the facility each day. Under the participation requirement, any taxpayer, contractor, or subcontractor that employs 4 or more individuals at any time during the course of the construction, alteration, or repair of the facility must hire at least one qualified apprentice.
The apprenticeship requirements only apply with respect to construction, alteration, or repair of a facility that occurs prior to the facility being placed in service. There are no apprenticeship requirements with respect to alterations or repairs after a facility is placed in service.
A4. Yes, there are two statutory provisions that provide for increased credit or deduction amounts without satisfying the prevailing wage and apprenticeship requirements. They are the one-megawatt exception and the beginning of construction exception.
A5. Under a transition rule in the final regulations, any work performed before January 29, 2023, is not subject to the prevailing wage and apprenticeship requirements, regardless of whether there is a beginning of construction exception for the applicable credit or deduction. Under this transition rule, taxpayers must only satisfy the prevailing wage and apprenticeship requirements (as applicable) for construction, alteration, or repair work occurring on or after January 29, 2023. The transition rule does not alter the beginning of construction exception. Taxpayers claiming an increased credit amount under sections 30C, 45, 45Q, 45V, 45Y, 48, 48E, or an increased deduction amount under section 179D are excepted from the prevailing wage and apprenticeship requirements if the taxpayer began construction or installation of a facility before January 29, 2023.
A6. The term construction, alteration, or repair generally means those activities that are considered “construction, prosecution, completion, or repair” as defined by the Davis Bacon Act and U.S. Department of Labor (DOL) guidance thereunder and that are performed with respect to a facility. Repair work normally includes an activity that improves the facility, either by fixing something that is not functioning properly or by improving upon the facility’s existing condition; involves the correction of individual problems or defects as separate and segregable incidents and is not continuous or recurring; or improves the facility’s structural strength, stability, safety, capacity, efficiency, or usefulness.
Construction, alteration, or repair work does not include maintenance work after a facility is placed in service. Maintenance is work that is ordinary and regular in nature and designed to maintain existing functionalities of a facility such as regular inspections of the facility, regular cleaning and janitorial work, regular replacement of materials with limited lifespans such as filters and light bulbs, and the regular calibration of equipment. Generally, work that improves the current condition or function of a facility is considered an alteration or repair and not maintenance work.
A7. For purposes of the prevailing wage requirements, a laborer or mechanic is considered employed by the taxpayer, contractor, or subcontractor if the individual performs the duties of a laborer or mechanic for the taxpayer, contractor, or subcontractor regardless of whether the individual would be characterized as an employee or an independent contractor for other Federal tax purposes. The definition of employed for purposes of the prevailing wage requirements is generally different and broader than the definition used elsewhere in the Code, for example with respect to employment taxes, as well as the associated reporting and withholding obligations. Laborers and mechanics who are independent contractors for employment tax purposes may be considered employed for purposes of the IRA prevailing wage requirements.
A1. Prevailing wages must be paid to all laborers and mechanics employed by the taxpayer, contractor, or subcontractor in the construction, alteration, or repair of a facility. The requirement to pay prevailing wages applies to work performed with respect to a qualified facility (or qualified property, project, or equipment, as applicable) within the meaning of the relevant section of the Code. Prevailing wages must also be paid for construction, alteration, or repair work performed at any secondary work site where such work is for specific use at the qualified facility and does not reflect the manufacture or construction of a product made available to the general public and the secondary work site is established specifically for or dedicated exclusively for a specific period of time to the construction, alteration, or repair of the facility. The prevailing wage rates for work performed at any secondary work site is determined based on the geographic area in which the secondary site is located.
Laborers and mechanics are those individuals whose duties are manual or physical in nature (including those individuals who use tools or who are performing the work of a trade). The terms laborer and mechanic include apprentices and helpers. The terms do not include individuals whose duties are primarily administrative, executive, or clerical, rather than manual.
A2. Yes. Unless an exception applies, taxpayers that are seeking an increased credit or deduction amount must ensure that laborers and mechanics employed by the taxpayer, contractor, or subcontractor in the construction, alteration, or repair of a facility are paid prevailing wages (wages at rates that are not less than the prevailing rates determined by the Department of Labor in accordance with the Davis-Bacon Act).
A1. Under the statute and the final regulations, a prevailing wage is the combination of the basic hourly wage rate and any fringe benefits listed in an applicable wage determination, as determined by the Secretary of Labor in accordance with subchapter IV of chapter 31 of title 40 of the United States Code, also known as the Davis-Bacon Act. Taxpayers may comply with the prevailing wage provisions by ensuring that each laborer and mechanic performing construction, alteration or repair of a facility is paid the applicable prevailing wage for the classification of work performed entirely as cash wages or by a combination of cash wages and employer-provided bona fide fringe benefits.
A2. General wage determinations are published by the Wage and Hour Division of DOL and available online at the System for Award Management website. If a taxpayer, contractor or subcontractor would like more information on wage determinations, the Wage and Hour Division has published a guide to understanding wage determinations PDF . For more information, please visit DOL's Prevailing Wage and the Inflation Reduction Act.
A3. If there is no general wage determination for the geographic area of the facility, taxpayers, contractors, or subcontractors may request a supplemental wage determination from the Wage and Hour Division of the Department of Labor. The taxpayer, contractor, or subcontractor should send requests for supplemental wage determinations to the U.S. Department of Labor at, U.S. Department of Labor, Wage and Hour Division, Branch of Construction Wage Determinations, Washington, D.C. 20210, or by email to iraprevailingwage@dol.gov.
A taxpayer, contractor, or subcontractor should make requests for a supplemental wage determination no more than 90 days before the taxpayer expects to execute the contract for the construction, alteration, or repair of the facility with a contractor. In the absence of a contract, the taxpayer, contractor, or subcontractor should make such requests no more than 90 days before construction, alteration, or repair of the facility starts.
Supplemental wage determinations issued by the Wage and Hour Division are effective for 180 calendar days from the date such determinations are issued. If a supplemental wage determination is not incorporated into the contract (or, in the absence of a contract, if construction has not started) during the 180-day period a new supplemental wage determination will need to be requested.
The request for a supplemental wage determination should contain all relevant information, including: the name of the taxpayer, contractor, or subcontractor requesting the supplemental wage determination or wage rate; the general wage determination(s), if any, applicable to construction, alteration, or repair of the facility; a description of the work to be performed, including the type(s) of construction involved and, if the project involves multiple types of construction, information indicating the expected cost breakdown by type of construction; the geographic area in which the facility is being constructed, altered, or repaired, including the name and address of the facility (if known); the date the taxpayer expects to enter into a contract with a contractor for which a supplemental wage determination is needed; the start date of construction, alteration, or repair at the facility; the labor classification(s) needed for performance of the work on the facility (excluding those for which wage rates are available on an applicable general wage determination); the duties to be performed by each such labor classification on the facility; the proposed wage rate, including any bona fide fringe benefits, for each such labor classification; any additional relevant information otherwise required by forms and instructions published by the U.S. Department of Labor; and any additional information the taxpayer, contractor, or subcontractor wants the U.S. Department of Labor to consider.
A4. If the applicable general wage determination does not include all of the labor classifications that will be needed for the construction, alteration, or repair of the facility, taxpayers, contractors, or subcontractors may request rates for an additional classification from the Wage and Hour Division of the Department of Labor. The taxpayer, contractor, or subcontractor should send requests for prevailing rates for additional classifications to the U.S. Department of Labor at, U.S. Department of Labor, Wage and Hour Division, Branch of Construction Wage Determinations, Washington, D.C. 20210, or by email to iraprevailingwage@dol.gov.
A request for prevailing wage rates for additional classifications can be made any time after a contract for the construction, alteration, or repair of a facility has been executed between the taxpayer and a contractor. In the absence of a contract, the taxpayer, contractor, or subcontractor should make such requests no more than 90 days before construction, alteration, or repair of the facility starts. If the taxpayer, contractor, or subcontractor cannot reasonably determine prior to execution of the contract between the taxpayer and the contractor or prior to the start of the construction, alteration, or repair work that an additional classification and wage rate is necessary, the taxpayer, contractor, or subcontractor should make such request as soon as practicable after determining that an additional classification and wage rate is necessary. Any wage rate for an additional classification that is issued applies from the earlier of the date of issuance or the first day in which work in the additional classification was performed.
The request rates for prevailing rates for an additional classification should contain all relevant information, including: the name of the taxpayer, contractor, or subcontractor requesting the supplemental wage determination or wage rate; the general wage determination(s), if any, applicable to construction, alteration, or repair of the facility; a description of the work to be performed, including the type(s) of construction involved and, if the project involves multiple types of construction, information indicating the expected cost breakdown by type of construction; the geographic area in which the facility is being constructed, altered, or repaired, including the name and address of the facility (if known); the date of execution of the contract with a contractor for which a prevailing wage rate for an additional classification is needed; the start date of construction, alteration, or repair at the facility; the labor classification(s) needed for performance of the work on the facility (excluding those for which wage rates are available on an applicable general wage determination); the duties to be performed by each such labor classification on the facility; the proposed wage rate, including any bona fide fringe benefits, for each such labor classification; any additional relevant information required by forms and instructions published by the U.S. Department of Labor; and any additional information the taxpayer, contractor, or subcontractor wants the U.S. Department of Labor to consider.
A5. Yes. If construction, alteration, or repair of the facility takes place in more than one locality (i.e., if an applicable wage determination does not cover the entire geographic area in which construction of the facility will take place), then the taxpayer, contractor, or subcontractor must use the applicable wage determination for the work performed in each geographic area. A taxpayer also is permitted to request a supplemental wage determination with respect to the facility and pay the rates determined by the DOL pursuant to the request. Additionally, more than one wage determination may be applicable where two or more construction types (e.g. Heavy and Building) apply to the construction, alteration or repair of a facility.
A6. The applicable wage determination is the wage determination in effect at the time a contract for the construction, alteration, or repair of the facility is executed by the taxpayer and a contractor. If a taxpayer executes separate contracts with more than one contractor with respect to the construction, alteration, or repair of the facility, then for each such contract, including work performed by subcontractors pursuant to that contract, the applicable wage determinations are those in effect at the time the contract is executed by the taxpayer and the contractor. If no contract exists with respect to the construction, alteration, or repair of the qualified facility (or if the date of execution of the relevant contract cannot be determined), the applicable wage determinations are those in effect at the time the construction, alteration, or repair work starts.
Taxpayers who perform any alteration or repair of a facility after the facility is placed in service must use the applicable wage determination in effect at the time the contract for the alteration or repair work is executed by the taxpayer and a contractor.
The applicable general wage determination generally remains valid for the duration of the work performed with respect to the construction, alteration, or repair of the facility by the taxpayer, contractor, or subcontractor. Additionally, taxpayers need to update the applicable general wage determination when work on a facility is changed to include additional construction, alteration, or repair work not within the scope of work of the original contract, or to require work to be performed for an additional time period not originally obligated, including where an option to extend the term of a contract for the construction, alteration, or repair is exercised. A new applicable general wage determination is not required if the contractor is simply given additional time to complete its original commitment or if the additional construction, alteration, or repair work in the modification of the contract is merely incidental.
If a taxpayer enters into a contract for alteration or repair work over an indefinite period of time that is not tied to the completion of any specific work, the applicable general wage determinations must be updated annually based on the contract execution date.