The Internal Revenue Service (IRS) issued guidance on the prevailing wage and apprenticeship requirements under the Inflation Reduction Act (IRA) by publishing Notice 2022-61 (the Notice) in the federal register today. Meeting the prevailing wage and apprenticeship requirements will allow projects to qualify for the higher base credit rates for tax credits under various IRA provisions, including the full 30% renewable energy investment tax credit (ITC), the $26 per megawatt-hour production tax credit (PTC), and additional potential bonus tax credits under several provisions of the IRA.
In general, (i) the prevailing wage requirement provides that mechanics and laborers must be paid no less than the prevailing wages that are required to be paid for federal construction work for the specific job type and location and (ii) the apprenticeship requirement provides that qualified apprentices must be used for certain minimum percentages of the total hours worked on a construction project. Although the Notice states that the IRS will issue additional guidance and regulations on the prevailing wage and apprenticeship requirements, the Notice provides some initial guidance for how the prevailing wage will be determined and how to comply with the apprenticeship requirements, along with examples and recordkeeping requirements for each.
Importantly, the Notice’s publication today also starts the clock for determining the effective date of the prevailing wage and apprenticeship requirements, which apply to projects that begin construction on or after the date that is 60 days from publication of IRS guidance on the requirements in the federal register. Failure to meet the prevailing wage and apprenticeship requirements can drastically reduce the base amount of tax credits available.
Accordingly, projects must begin construction before January 28, 2023, to be exempt from the IRA’s prevailing wage and apprenticeship requirements. There had been some uncertainty as to whether the pre-IRA guidance with respect to determining whether construction has begun would continue to apply under the IRA. The Notice eliminated any uncertainty by confirming that such pre-IRA guidance will be used for purposes of the IRA, including use of the Physical Work Test and Five Percent Safe Harbor under Notice 2013-29 and the Continuity Safe Harbor under Notice 2013-60 (in each case as updated, clarified and modified by subsequent notices).
With respect to prevailing wage and apprenticeship requirements, the Notice provided initial guidance on several topics. The Notice leans heavily on procedures, rules and definitions set forth in existing Department of Labor (DOL) regulations. Below are a few highlights.
- The Notice provides that the labor rules apply to any mechanics or laborers employed by the taxpayer and any contractors or subcontractors working on a project during the construction period and those working on any repair or alteration of the project during the applicable credit period (e.g., 5 years for investment tax credits).
- The Notice confirms that “employed” for these purposes includes any person who performs services for renumeration regardless of whether such person is an employee or independent contractor for other tax purposes.
- The Notice provides that taxpayers can rely on published prevailing wage information when available on the Department of Labor’s website. The Notice also provides a process for taxpayers to request wage information when such information is not published on the Department of Labor’s website.
- The Notice provides some specific procedures for taxpayers to follow to demonstrate compliance with the apprenticeship requirement, including in situations in which the taxpayer attempts but is unable to find apprentices.
- Taxpayers must maintain records sufficient to prove that prevailing wages were paid, and apprenticeship hours were satisfied. The Notice does not provide much guidance here and instead simply restates the recordkeeping requirements under general tax law. The Notice then provides some very basic examples.
We will follow up separately with more detailed information regarding the labor matters covered in the Notice.
- The Notice provides answers to some of the open questions with respect to the IRA’s prevailing wage and apprenticeship requirements, but the Notice also states that additional guidance with respect to such requirements is forthcoming.
- Projects must generally begin construction before January 28, 2023, to be exempt from the IRA’s new prevailing wage and apprenticeship requirements.
- The Notice confirms that the pre-IRA guidance used for determining whether construction has begun will apply for purposes of the IRA, including use of the Physical Work Test and Five Percent Safe Harbor under Notice 2013-29 and the Continuity Safe Harbor under Notice 2013-60 (in each case as updated, clarified and modified by subsequent notices).