In June 2024, the IRS released final regulations regarding prevailing wage and apprenticeship requirements under the IRA (Inflation Reduction Act). These requirements unlock significant tax benefits for clean energy projects, potentially increasing tax credits or deductions five-fold.

To claim these enhanced tax incentives, construction business owners, subcontractors, and project developers must comply with the Prevailing Wage and Apprenticeship (PWA) Requirements. Here’s what you need to know to navigate this vital compliance area effectively.

General Requirements

The IRA provides a five-fold increase in certain clean energy incentives, including the following:

• Investment tax credit,
• Production tax credit,
• Energy-efficient commercial buildings deduction,
• Renewable energy production tax credit, and
• Renewable energy property investment tax credit.

These incentives apply to the construction, alteration, or repair of eligible clean energy facilities, projects, or equipment.

To qualify for these enhanced benefits, taxpayers must ensure that laborers and mechanics on projects are paid at or above the prevailing wage rates set by the U.S. Department of Labor (DOL). Additionally, the regulations mandate the use of apprentices from registered programs. All contractors and subcontractors involved must adhere to the Prevailing Wage and Apprenticeship Requirements Under the Inflation Reduction Act to avoid penalties, which can be significant for noncompliance.

Key Highlights of the Final Regulations

At over 300 pages, the final regulations provide detailed guidance on the Prevailing Wage and Apprenticeship Requirements Under the Inflation Reduction Act. While they mirror earlier proposed rules, several critical revisions clarify contractors’ obligations.

Apprentice Requirements
The apprentice requirements now apply exclusively to the construction phase of a clean energy project. Alteration or repair work conducted after a facility is placed in service is exempt. However, repair work during the construction phase remains subject to the requirements.

Prevailing Wage Determinations
The final regulations refine the timing for prevailing wage determinations. The prevailing wage must be determined when the contract is executed between the taxpayer and contractor. If no contract exists, the determination is made when construction starts. Activities previously treated as “preliminary” may now fall under the prevailing wage requirements.

Supplemental Wage Determinations
Supplemental wage determinations must be requested no more than 90 days before a contract is signed and remain valid for 180 days. If the determination is not incorporated into a contract within that period, a new request must be submitted.

Good Faith Effort Exception
The regulations extend the timeframe for the “good faith effort” exception for apprenticeships. Requests for apprentices must be made at least 45 days before their start date and are now valid for 365 days, compared to 120 days under the proposed regulations. If no apprenticeship program operates in the area, contacting the DOL or a state apprenticeship agency satisfies the exception.

Recordkeeping and Compliance

The final regulations stress the importance of maintaining proper records to meet the Prevailing Wage and Apprenticeship Requirements Under the Inflation Reduction Act. Responsibility for documentation can rest with the taxpayer, contractor, or a third party, but ultimate compliance remains with the taxpayer. Contractors should familiarize themselves with these recordkeeping standards to ensure seamless collaboration with project owners.

Transitional Relief and Applicability

The final regulations apply to projects beginning construction and placed in service after June 25, 2024. Transitional relief exempts activities before January 29, 2023. Projects completed between January 29, 2023, and June 25, 2024, may adhere to either the proposed or final regulations.

Why Compliance Matters

With the potential for increased tax benefits, the IRS has prioritized enforcing the Prevailing Wage and Apprenticeship Requirements Under the Inflation Reduction Act. Contractors must fully understand these rules to compete for qualifying projects successfully and assure project owners of their ability to comply.

If your construction business plans to bid on a qualifying clean energy project, our firm can provide the guidance you need to comply with these regulations while maximizing available tax benefits.