The Department of the Treasury and the Internal Revenue Service (IRS) have released final regulations on the prevailing wage and apprenticeship (PWA) requirements linked to increased credit or deduction amounts for certain clean energy incentives under the Inflation Reduction Act (IRA). These regulations provide guidance on how taxpayers can qualify for enhanced benefits by adhering to specific labor standards.
The IRA includes provisions that boost the base amount of certain clean energy credits or deductions by five times for taxpayers who meet the PWA requirements. These requirements pertain to the construction, alteration, or repair of clean energy facilities, properties, projects, or equipment.
IRS Commissioner Danny Werfel stated, “The increased credit or deduction for taxpayers meeting prevailing wage and apprenticeship requirements creates opportunities for both workers and employers. The IRS is committed to ensuring that taxpayers claiming the clean energy credits comply with all of the applicable prevailing wage and apprenticeship requirements.”
To qualify for the increased credit or deduction amounts, taxpayers must:
- Ensure laborers and mechanics are paid wages at rates not less than the applicable prevailing wage rates.
- Employ qualified apprentices from registered apprenticeship programs.
- Meet specific recordkeeping and reporting requirements.
These requirements apply to all contractors and subcontractors involved in the construction, alteration, or repair work. However, the taxpayer claiming the increased credit or deduction is ultimately responsible for ensuring compliance.
Ensuring compliance with the PWA requirements and other clean energy tax credits is a top priority for the IRS. Significant resources will be dedicated to promoting and enforcing these final rules in the coming months. The IRS plans to work closely with taxpayers, advisors, and stakeholders through education and outreach efforts, supported by funding from the IRA.
To assist with compliance, the IRS has released several publications, including:
- Publication 5983, IRA Prevailing Wage and Apprenticeship Requirements Fact Sheet
- Publication 5855, IRA Prevailing Wage & Registered Apprenticeship Overview
- A set of frequently asked questions about the PWA requirements
Publication 5855 summarizes the PWA requirements, while the FAQs offer detailed information and guidance on how to report suspected tax violations related to the PWA requirements. The IRS takes such referrals seriously and may use the information received during audits.
The PWA provisions include a penalty framework designed to encourage real-time compliance. To avoid penalties and ensure eligibility for the increased credit or deduction amounts, taxpayers should establish robust compliance frameworks. This includes reviewing payroll records, ensuring contracts require adherence to PWA requirements, and maintaining proper classifications of laborers and mechanics.
Additional steps for compliance might include:
- Regularly reviewing prevailing wage rates and the percentage of labor hours by qualified apprentices.
- Posting prevailing wage rates prominently or providing written notice to laborers and mechanics.
- Establishing procedures for reporting suspected non-compliance without fear of retaliation.
- Contacting the Department of Labor’s Office of Apprenticeship or relevant state agencies for assistance in locating registered apprenticeship programs.
The U.S. Department of Labor (DOL) determines the applicable prevailing wage rates for each classification of laborers and mechanics in specific geographic areas. For more information about these rates, visit the DOL’s website.
To support compliance, the DOL and IRS are working on a Memorandum of Understanding (MOU) to be signed by the end of the year. This MOU will facilitate joint education, public outreach, and the development of training content for IRS personnel. It will also allow the DOL to share credible tips or information about potential non-compliance with the IRS.
For more information, visit the Inflation Reduction Act of 2022 page on IRS.gov.
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