Policy & Regulation

Feds issue final rules for IRA’s prevailing wage, apprenticeship requirements

Feds issue final rules for IRA’s prevailing wage, apprenticeship requirements
(A construction worker at the Honeysuckle solar site in Indiana. Credit: light source bp)

The U.S. Department of the Treasury and the Internal Revenue Service (IRS) released final rules on prevailing wage and registered apprenticeship (PWA) requirements in the Inflation Reduction Act.

The final rules from Treasury – which were developed in partnership with the Department of Labor (DOL) – are intended to provide clarity and certainty on the PWA requirements. In general, if taxpayers pay prevailing wages to laborers and mechanics and hire registered apprentices for projects supported by most of the Inflation Reduction Act’s clean energy tax incentives, then taxpayers can claim an increased credit equal to five times the base incentive. This includes projects utilizing the investment and production tax credits that help finance utility-scale wind, solar, and battery storage projects, as well as for credits for carbon capture, utilization, and storage and clean hydrogen projects. 

“President Biden’s Inflation Reduction Act has driven an investment boom while ensuring that workers building the clean energy economy benefit from good pay and new opportunities to get ahead,” said Secretary of the Treasury Janet L. Yellen. “Treasury’s final rules ensure we have skilled workers ready to take advantage of the jobs being created by these historic investments.” 

The prevailing wage and apprenticeship requirements took effect in January 2023. The final rules follow the consideration of more than 300 public comments in response to the proposed ruling and will help streamline compliance. Details of the final rules include: 

  • Requiring that determinations of prevailing wage rates be made by DOL, consistent with the Davis-Bacon Act; 
  • Incentivizing practices that will encourage contemporaneous compliance;
  • Implementing strong recordkeeping requirements;
  • Guaranteeing that taxpayers with projects covered by qualifying project labor agreements do not need to pay penalties; and
  • Clarifying apprenticeship requirements such as clearly defining what constitutes as a request for qualified apprentices, what constitutes as a response, and when the good faith effort exception applies. 

“This rule will ensure these tax breaks are providing real, tangible benefits to workers in communities across the country,” said Acting Secretary of Labor Julie Su. “From fair wages to training opportunities for workers, this administration is doing everything we can to make sure working people share in the prosperity of a clean energy future.”

Since the passage of the Inflation Reduction Act in 2022, announced investments in clean energy projects have projected the creation of more than 270,000 jobs, and studies project that more than 1.5 million additional jobs will be created because of the law over the next decade.

“The Inflation Reduction Act is not only the biggest action ever taken on the climate crisis, it’s also proof that you can address climate and create high-wage, high-skill jobs at the same time,” said Senate Finance Committee Chair Ron Wyden, (D-Oregon). “The idea that fighting climate change would end up hurting vast numbers of American workers was a fabrication by Republicans and their Big Oil donors all along. If Republicans are in control in 2025, they’re going to try to tear down the climate and energy reforms we passed in the Inflation Reduction Act, including these protections and benefits for workers.”

The PWA requirements intend to spur more clean energy projects that lead to good-paying jobs. In Wisconsin, for example, five construction unions forged an agreement with Wisconsin’s top utility provider to ensure union workers will be hired for most future utility-scale solar, wind, and battery storage projects in Wisconsin. In Oregon, Wheatridge Renewable Energy Facility – one of the largest hybrid wind, solar, and storage facilities in America and co-owned by Portland General Electric and NextEra Energy – has already put about 2,000 members of the International Brotherhood of Electrical Workers Local 112 to work, with more to come.

DOL recently launched an interactive map that estimates the number of workers at each project who stand to benefit if taxpayers satisfy the prevailing wage and apprenticeship requirements. Biden Administration officials and staff will be conducting webinars, briefings, and other engagements over the coming months to help educate workers about these rules and their associated tools and resources. 

The IRS announced that in the months ahead, it will dedicate “significant” resources to promoting and enforcing compliance with the final clean energy rules. The IRS also released a new PWA Fact Sheet that provides a summary of the PWA requirements and information on how to alert the IRS of suspected tax violations related to the PWA increase. The IRS takes referrals of alleged tax violations seriously and may use the information received about potential violations in connection with any applicable audit.  

To support the IRS’s efforts in ensuring taxpayer compliance with the prevailing wage and apprenticeship requirements under the Inflation Reduction Act, DOL and the IRS are working on a Memorandum of Understanding (MOU) to be signed by the end of the year. The MOU is meant to facilitate joint and cooperative education and public outreach as well as the development of training content for IRS examination personnel. The MOU will also facilitate DOL’s review and comment as part of the development of PWA tax forms. Finally, the MOU will formalize a process for DOL to share with IRS any credible tips or information DOL receives as to potential noncompliance with the PWA requirements.

Treasury and DOL also encourage developers to consider project labor agreements as a strategy to help ensure compliance with the PWA requirements. The final rules include special provisions for project labor agreements, which can help taxpayers comply with the PWA requirements.

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