Final Rule for IRA Tax Credits Announced by Treasury
TL/DR –
The United States Department of the Treasury has finalized labor standards for the Inflation Reduction Act’s tax credits. The regulations allow for a credit increase equal to five times the base incentive for taxpayers who provide prevailing wages and hire registered apprentices for clean energy projects. Since the Act was passed in 2022, it has pushed investments in clean energy and is projected to create over 1.5 million jobs in the next decade.
US Treasury Finalizes Labor Standards for Inflation Reduction Act (IRA) Tax Credits
The United States Department of the Treasury established a definitive rule on labor standards for the Inflation Reduction Act (IRA) tax credits on June 18. The IRA, passed in 2022, has spurred investments in clean energy projects, projected to create over 270,000 jobs, with an additional 1.5 million jobs expected to be generated in the next decade.
Secretary of the Treasury, Janet L. Yellen, commented, “The Inflation Reduction Act has stimulated an investment surge while assuring that workers in the clean energy economy benefit from superior pay and new opportunities. The final rules from the Treasury ensure a skilled workforce is ready to capitalize on jobs created by these landmark investments.”
The final rules state that taxpayers can claim a credit five times the base incentive if they pay prevailing wages to laborers and mechanics and hire registered apprentices for projects supported by most of the IRA’s clean energy tax incentives. This includes projects employing utility-scale wind, solar, and battery storage projects, along with credits for carbon capture, utilization, and storage and clean hydrogen projects.
The IRS announced the upcoming release of a new Prevailing Wage and Apprenticeship (PWA) fact sheet in the months ahead, providing a summary of PWA requirements and informing how to notify the IRS of suspected tax violations related to the PWA increase.
Prevailing wage and apprenticeship requirements came into effect in January 2023, and today’s final rules will help streamline compliance after considering over 300 public comments on the proposed rule. Details of the final rules include requiring prevailing wage rates be determined by the Department of Labor, incentivizing practices for immediate compliance, implementing robust record-keeping requirements, assuring no penalties for taxpayers with qualifying project labor agreement projects, and clarifying apprenticeship requirements.
The International Association of Sheet Metal, Air, Rail and Transportation Workers (SMART) released a statement in response, declaring: “There are laws that say good things to union members, and there are laws that do good things for union members. With the final rule on labor standards for Inflation Reduction Act tax credits, the IRA benefits our members. These pioneering tax credits offer up to five times the base credit to those who pay prevailing wages and employ registered apprentices on qualifying clean energy projects, making union labor use on such projects an obvious choice. We thank the administration for taking steps to ensure green jobs are union jobs and our skilled tradespeople are ready to build our country’s sustainable future.”
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