Final IRS prevailing wage rules encourage project labor agreements

The U.S. Department of the Treasury and the Internal Revenue Service (IRS) released final rules today on prevailing wage and registered apprenticeship (PWA) requirements in the Inflation Reduction Act. As part of the Biden-Harris Administration’s Investing in America agenda, the final rules will help build a strong pipeline of highly skilled workers to support the growth of the clean energy economy and ensure clean energy jobs are good-paying jobs.

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.

“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.”

Today’s final rules from Treasury — which were developed in close partnership with the Department of Labor (DOL) — provide clarity and certainty on the PWA requirements to ensure the clean energy transition is centered around workers. 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.

“Meeting strong labor standards and building partnerships with unions will now be the norm for clean energy projects,” said John Podesta, Senior Advisor to the President for International Climate Policy. “Today’s final rules give clarity and certainty to developers and the workers they employ that clean energy jobs will be good jobs.”

To help workers, unions and the public learn more about the jobs being created nationwide by more than 1,000 planned clean energy projects, 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-Harris 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.

Ensuring that taxpayers that claim Clean Energy credits have met their obligations — particularly enforcing the PWA requirements for increased credits — is a top priority for the IRS. Today, the IRS is announcing that in the months ahead, the IRS will dedicate significant resources to promoting and enforcing compliance with the final clean energy rules. The IRS has released an overview of the new rules, frequently asked questions, and a fact sheet that includes information for 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. Harnessing DOL’s extensive prevailing wage and registered apprenticeship expertise, the MOU will facilitate joint and cooperative education and public outreach and 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.

The prevailing wage and apprenticeship requirements took effect in January 2023. Today’s final rules follow consideration of more than 300 public comments in response to the proposed ruled 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 record-keeping 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.

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