Treasury Issues Prevailing Wage and Apprenticeship Requirements Guidance

The U.S. Department of the Treasury and the Internal Revenue Service on November 29 announced the release of guidance providing taxpayers information on how to satisfy the prevailing wage and apprenticeship requirements to qualify for enhanced tax benefits under the Inflation Reduction Act’s clean energy provisions.

The publication of Notice 2022-61 and further guidance in the Federal Register – published on November 30, 2022 -- begins the 60-day period for these key labor provisions to take effect. In other words, these requirements will apply to qualifying facilities, projects, property, or equipment for which construction begins on or after January 30, 2023. Thus, in order to receive increased incentives, taxpayers must meet the prevailing wage and apprenticeship requirements for facilities where construction begins on or after January 30, 2023.

Prevailing Wage and Apprenticeship Requirements

The Inflation Reduction Act, which President Biden signed into law on August 16, 2022, introduced a new credit structure whereby many clean energy tax incentives are subject to a base rate and a “bonus multiplier” of 5X. To qualify for the bonus rate, projects must satisfy certain wage and apprenticeship requirements implemented to ensure both the payment of prevailing wages and that a certain percentage of total labor hours are performed by qualified apprentices.

Projects under 1MW or that begin construction within 60 days of the date when the Treasury publishes guidance regarding the wage and apprenticeship requirements are automatically eligible for the bonus credit.

The newly released guidance addresses the Inflation Reduction Act's two labor requirements — providing prevailing wages and employing a certain amount of registered apprentices — that taxpayers must meet for clean energy developments to qualify for the bonus rate.

Both the prevailing wage and apprenticeship requirements apply to the following tax incentives:

• Advanced energy project credit
• Alternative fuel refueling property credit
• Credit for carbon oxide sequestration
• Clean fuel production credit
• Credit for the production of clean hydrogen
• Energy-efficient commercial buildings deduction
• Renewable energy production tax credit
• Renewable energy property investment tax credit

The prevailing wages requirements also apply to the following tax incentives:

• New zero-efficient home credit
• Zero-emissions nuclear power production credit

New Guidance

The new guidance describes the process for identifying the applicable wage determination for a specific geographic area and job classification on the Department of Labor’s sam.gov website. If no prevailing wage determination is posted for a specific geographic area and/or job classification, the notice provides that taxpayers should contact the DOL’s Wage and Hour Division, which would then provide the taxpayer with the labor classifications and wage rates to use.

For purposes of the apprenticeship requirements, the guidance provides specific information regarding the apprenticeship labor hour, ratio and participation requirements. The guidance also describes the good faith effort exception, whereby a taxpayer will be deemed to have satisfied the apprenticeship requirements with respect to a facility if the taxpayer has requested qualified apprentices from a registered apprenticeship program and the request has been denied or the program fails to respond the request within five business days.

The guidance also specifies the recordkeeping requirements taxpayers must comply with to substantiate that they paid workers a prevailing wage and satisfied the apprenticeship requirements.

Beginning of Construction Guidance

As mentioned above, taxpayers must meet the prevailing wage and apprenticeship requirements with respect to a facility to receive the increased credit or deduction amounts if construction of the facility begins on or after the date 60 days after the Treasury publishes guidance. Notice 2022-61 confirms the use of long-standing methods for establishing the date of the beginning of construction:

• The physical work test (starting physical work of a significant nature); or
• The 5% safe harbor (incurring 5% or more of the total cost of the facility).

For purposes of both tests, taxpayers must demonstrate either continuous construction or continuous efforts – the continuity requirement -- for the beginning of construction to be satisfied.