Inflation Reduction Act
Resources and Guidance for Contractors and Developers
The Inflation Reduction Act was signed into law on Aug. 16, 2022, and provides over $270 billion in tax credits for the construction of solar, wind, hydrogen, carbon sequestration, electric vehicle charging stations and other clean energy projects.
1. What Are the IRA’s Prevailing Wage and Apprenticeship Requirements?
A new policy in Subtitle D-Energy Security of the IRA grants developers/taxpayers a bonus tax credit 500% greater than a baseline tax credit of 6%. However, this is conditioned on requirements that project contractors meet prevailing wage and apprenticeship requirements outlined in the legislation and IRS guidance. Developers/taxpayers must ensure that contractors pay all construction workers prevailing wages and benefits set by the U.S. Department of Labor via the Davis-Bacon Act. Developers must also ensure that contractors utilize apprentices enrolled in government-registered apprenticeship programs for certain percentages of all construction hours worked on a project (12.5% of all work hours in 2023 and 15% of all work hours in 2024 and thereafter).
All contractors with four or more employees on a jobsite must utilize at least one registered apprentice and comply with applicable apprenticeship ratios thereafter. The developer/taxpayer faces considerable penalties if prevailing wage and registered apprenticeship requirements are not met. This new policy is an unprecedented expansion of prevailing wage and government-registered apprenticeship requirements/enticements onto private construction projects via the federal tax code.
On Aug. 29, 2023, Treasury issued a proposed rule and FAQs to provide additional guidance regarding the IRA’s prevailing wage and apprenticeship requirements. For more information, see ABC’s Newsline and press release on the proposed rule. ABC will continue to thoroughly review the proposal and will be providing additional information. ABC will be submitting comments on the proposal and encourages members to participate in the Treasury’s 60-day comment period, which closes on Oct. 30.
Update: On Oct. 30, ABC submitted comments to the IRS and issued a Oct. 31 press release promoting its comments. The IRS docket received more than 9,600 comments from interested stakeholders, many of which were generated using grassroots messaging in support or in opposition to the NPRM.
2. Will ABC Member Contractors Be Able To Perform Work for Developers/Taxpayers Taking Advantage of the Full IRA Tax Credits?
ABC member contractors can build these projects for developers/taxpayers seeking the full tax credits as long as they meet the IRA’s prevailing wage and apprenticeship requirements. In fact, ABC contractors with experience complying with the prevailing wage and apprenticeship regulations may find new opportunities in the clean energy construction market as a result of this law. However, firms––in particular small businesses––with no experience in prevailing wage and apprenticeship regulations may face challenges in complying with these new regulations. In addition, IRS needs to provide additional clarity to the regulated community for developers and contractors to have certainty to finance and build these projects once rules are clearly defined.
3. When Will the Prevailing Wage and Apprenticeship Requirements Apply to Clean Energy Construction Projects?
Prevailing wage and apprenticeship requirements outlined in the IRA and the U.S. Department of the Treasury’s Nov. 30, 2022, guidance, prevailing wage FAQ and apprenticeship FAQ websites apply to projects that began construction on or after Jan. 30, 2023.
Update: The IRS PWA NPRM raises additional confusion about whether the Nov. 30, 2022, initial IRS guidance or the NPRM should be followed prior to the issuance of final regulations (ABC is seeking additional clarity):
“These regulations are proposed to apply to facilities, property, projects, or equipment placed in service in taxable years ending after the date these regulations are published as final in the Federal Register and the construction or installation of which begins after the date these regulations are published as final regulations in the Federal Register. However, taxpayers may rely on these proposed regulations with respect to construction or installation of a facility, property, project, or equipment beginning on or after January 29, 2023, and on or before the date these regulations are published as final regulations in the Federal Register, provided, that beginning after the date that is 60 days after August 29, 2023, taxpayers follow the proposed regulations in their entirety and in a consistent manner.” - Source
4. How Can ABC Chapters and Members Find Resources and Guidance on the New IRA Requirements?
ABC has collected ABC and government guidance and resources below to assist member contractors in maximizing the potential opportunities presented by the IRA while navigating the unique difficulties posed by its expansion of prevailing wage and government-registered apprenticeship program requirements onto private sector construction projects.
If you have questions about complying with the IRA’s prevailing wage and government-registered apprenticeship program requirements, ABC is here to help. Email us your questions at [email protected] and we will work to get you an answer via our subject matter experts, or reach out to IRS/Treasury for a response. In addition, utilize the ABC Chapter Government-Registered Apprenticeship Program Locator (GRAP Map) to locate qualifying GRAPs.
5. Which Clean Energy Tax Credits Are Affected by the IRA’s Prevailing Wage and Apprenticeship Requirements?
The IRA’s prevailing wage and apprenticeship provisions apply to:
- Alternative Fuel Refueling Property Credit (Sec. 13404), 30C
- Production Tax Credit (Sec. 13101), 45
- Credit for Carbon Oxide Sequestration (Sec. 13104), 45Q
- Credit for Production of Clean Hydrogen (Sec. 13204), 45V
- Clean Fuel Production Credit (Sec. 13704), 45Z
- Investment Tax Credit (Sec. 13102), 48E
- Advanced Energy Project Credit (Sec. 13501), 48C
- Energy Efficient Commercial Buildings Deduction (Sec. 13303), 179D
In addition, only the IRA’s prevailing wage provisions apply to:
- New Energy Efficient Home Credit (Sec. 13304), 45L
- Zero-Emission Nuclear Power Production Credit (Sec. 13105), 45U