Final Regulations and Updates to Prevailing Wage and Apprenticeship Requirements

In 2022, the Inflation Reduction Act introduced several tax incentives for energy-efficient projects. To qualify, taxpayers who wish to claim these incentives must meet specific prevailing wage and apprenticeship (PWA) requirements.  

On June 25th, 2024, the IRS and Treasury Department released final regulations that outline the rules for meeting these PWA requirements. These regulations impact various IRC sections, including 30C, 45, 45L, 45Q, 45U, 45V, 45Y, 45Z, 48C, and 179D. However, the final regulations have not finalized the rules for sections 48 and 48E, which will be addressed in future updates by the Treasury and IRS. 

Increased Incentives for Taxpayers that meet Prevailing Wage and Apprenticeship Requirements  

If Prevailing Wage and Apprenticeship (PWA) requirements are met, taxpayers can expect an increase in the initial incentive amount by five times.  

Increased incentive amounts are available for taxpayers satisfying prevailing wage and apprenticeship requirements under the following sections of the Code: 

• Section 30C alternative fuel vehicle refueling property credit 

• Section 45 Renewable Electricity Production credit 

• Section 45Q credit for carbon oxide sequestration 

• Section 45V credit for production of clean hydrogen 

• Section 45Y clean electricity production credit 

• Section 45Z clean fuel production credit 

• Section 48 energy credit 

• Section 48C qualifying advanced energy project credit 

• Section 48E clean electricity investment credit 

• Section 179D energy efficient commercial buildings deduction 

Increased incentive amounts are available for taxpayers satisfying prevailing wage requirements under: 

• Section 45L new energy-efficient home credit (apprenticeship requirements do not apply) 

• Section 45U zero-emission nuclear power production credit (apprenticeship requirements do not apply) 

Prevailing Wage Requirements 

The prevailing wage requirements under the Inflation Reduction Act (IRA) mandate that all workers (including those employed by contractors or subcontractors) involved in building, altering, or repairing a qualified facility must be paid wages that meet or exceed the rates set by the Department of Labor. These rates, established under the Davis-Bacon Act (DBA), vary based on the type of work and the project’s location. 

The increased incentive is available for certain facilities, properties, projects, technologies, or equipment under sections 30C, 45, 45Q, 45V, 45Y, 48, 48E, and 179D, without meeting the PWA requirements. To qualify, the construction or installation must have begun before January 29, 2023. This condition is referred to as the “Beginning of Construction (BOC) Exception.” 

Apprenticeship Requirements  

The apprenticeship requirements under the Inflation Reduction Act (IRA) include three main elements: labor hours, ratio, and participation. 

1. Labor Hours Requirement: A specific percentage of total labor hours on a project must be performed by apprentices from registered apprenticeship programs. This percentage is 10% for projects starting before 2023, 12.5% for those beginning in 2023, and 15% for projects starting in 2024 or later. 
2. Ratio Requirement: The number of apprentices working on a project must match the ratio of apprentices to journey workers as established by the apprenticeship program. 
3. Participation Requirement: Any contractor or subcontractor employing four or more individuals on a project must include at least one qualified apprentice. 

These requirements apply to a facility’s construction, alteration, or repair before it is operational. Once the facility is in service, these requirements no longer apply. 

Recordkeeping Requirements  

The Prevailing Wage and Apprenticeship (PWA) provisions include strict penalties for not meeting their requirements, encouraging compliance in real-time. Given the potential for increased tax incentives and the risk of penalties, taxpayers should establish systems to ensure they meet PWA standards, including reporting and recordkeeping. 

These steps might include: 

• Regularly reviewing payroll records. 

• Ensuring that contracts mandate compliance with PWA requirements for contractors and subcontractors. 

• Checking the classifications of workers, prevailing wage rates, and the required percentage of apprentice labor hours. 

• Posting prevailing wage rates where they can be easily seen or providing written notice to workers during construction, alteration, and repair work. 

• Investigating any reports of non-compliance. 

• Contacting the Department of Labor’s Office of Apprenticeship or relevant state agencies to find registered apprenticeship programs. 

These measures help ensure projects meet PWA requirements and qualify for the associated benefits.