Final Wage Rules for Tax Credit Set under Inflation Reduction Act – Duane Morris LLP
TL/DR –
The U.S. Department of the Treasury and the Internal Revenue Service have issued final rules on prevailing wage and apprenticeship requirements in the Inflation Reduction Act, which allows developers of clean energy projects to claim tax credits up to five times the base incentive if they pay prevailing wages and hire registered apprentices. Exceptions to these rules include certain facilities under 1 megawatt and those that began construction before January 29, 2023. The rules also incentivize compliance, impose strict record-keeping, define apprenticeship requirements, and guarantee no penalties for projects covered by qualifying labor agreements.
Final Rules on Prevailing Wage and Apprenticeship Requirements Released by Treasury and IRS
On June 18, 2024, the U.S. Department of the Treasury and the IRS released final rules on prevailing wage and apprenticeship requirements under the Inflation Reduction Act. This provides clarity for developers of clean energy projects, who can claim tax credits up to five times the base incentive if they pay prevailing wages and hire registered apprentices.
The final rules were formulated after the Treasury and IRS reviewed over 300 public comments. The unpublished rule is available here ahead of its June 25, 2024, Federal Register publication. The IRS also provided an overview of requirements, FAQs, and a fact sheet for better understanding and compliance. The rules will be effective 60 days after publication.
If developers adhere to the PWA requirements for clean energy tax incentive supported projects, they can claim a credit of five times the base incentive. This applies to utility-scale wind, solar, battery storage projects, carbon capture, and clean hydrogen projects.
There are exceptions where the quintuple increase can be claimed without meeting requirements:
- Small clean energy producing facilities under 1 megawatt
- Construction initiated before January 29, 2023
The final rule includes further details:
- Prevailing wage rates determined by the Department of Labor (DOL), in line with the Davis-Bacon Act
- Practices to encourage compliance
- Robust recordkeeping requirements
- Exemption for taxpayers with projects covered by qualifying project labor agreements from penalties
- Clear apprenticeship requirements
To ensure compliance, the DOL and IRS are formalizing a collaboration process via a memorandum of understanding by year-end. This aims at enhancing education and enforcement of the PWA requirements.
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