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Final Regulations on Prevailing Wage and Apprenticeship Requirements for Clean Energy Tax Incentives Under the Inflation Reduction Act

July 1, 2024

On June 18, the U.S. Department of the Treasury and the Internal Revenue Service issued final regulations on the prevailing wage and apprenticeship (PWA) requirements for increased credits or deductions under the Inflation Reduction Act (IRA), which pertain to clean energy incentives. The IRA offers increased credit or deduction amounts for taxpayers who meet specific PWA requirements for clean energy projects, potentially increasing the base amount by five times.

To qualify for the increased credits or deductions, taxpayers must pay laborers and mechanics at prevailing wage rates during construction, alteration, or repair of clean energy facilities, employ apprentices from registered apprenticeship programs, and adhere to specific recordkeeping and reporting standards. Taxpayers are responsible for ensuring that all contractors and subcontractors meet these requirements.

The IRS underscores the importance of compliance with PWA requirements, dedicating resources to enforce these regulations through taxpayer education and outreach supported by IRA funding. Efforts include updated publications and FAQs to help taxpayers understand PWA requirements and report suspected violations, which the IRS may use in audits. IRS Commissioner Danny Werfel highlighted that these incentives benefit both workers and employers, emphasizing the IRS’s commitment to ensuring compliance with PWA requirements through enhanced taxpayer service and enforcement resources.

Significant penalties are imposed for non-compliance with PWA requirements, emphasizing the necessity of real-time adherence to these standards. To ensure compliance, taxpayers should conduct regular payroll reviews, mandate PWA adherence in contracts, post prevailing wage rates visibly, establish procedures for reporting non-compliance without retaliation, and consult the Department of Labor (DOL) for apprenticeship program assistance.

The DOL, responsible for setting prevailing wage rates, will collaborate with the IRS through a Memorandum of Understanding (MOU) to enhance compliance efforts, including shared training and information exchange.

More information can be found on the Inflation Reduction Act of 2022 page on