Prevailing Wage and Apprenticeship Requirements for Clean Energy Tax Credits
What are clean energy tax credits?
The 2022 Inflation Reduction Act (IRA) modified and increased several tax credits that involve clean energy projects, including the construction of clean energy generation (including solar), energy storage, energy-efficient buildings, electric vehicle charging infrastructure, and other clean energy projects.
What are the prevailing wage and apprenticeship requirements?
Taxpayers can increase the base amounts of multiple clean energy tax credits1 by five times if they meet certain prevailing wage and apprenticeship (PWA) requirements.
On June 25, 2024, the U.S. Department of the Treasury issued Final Rules for Prevailing Wage and Registered Apprenticeship (PWA) Requirements. Treasury also updated the FAQs for Prevailing Wage & Apprenticeship under the IRA, based on the final rules.
Certain projects do not need to meet these PWA requirements, including smaller clean energy projects under 1 megawatt (MW) and projects that began construction2 before Jan. 29, 2023.
What are the prevailing wage requirements?
To meet prevailing wage requirements, taxpayers must ensure that all laborers and mechanics are paid no less than the applicable prevailing wage for all hours performing construction, and in some cases, alteration or repair, on the work site.3
A prevailing wage is the combination of the basic hourly wage rate and any fringe benefits rate paid to workers in a specific classification of laborer or mechanic in the area where construction, alteration, or repair is performed. The U.S. Department of Labor (DOL) posts labor classifications and their prevailing wage rates in wage determinations on sam.gov.
What are the apprenticeship requirements?
The three main apprenticeship requirements that taxpayers must satisfy are:
- Apprenticeship labor hour requirements: Taxpayers or contractors must employ registered apprentices for a certain percentage of the total labor hours worked (12.5% for construction beginning in 2023, and 15% for construction beginning in 2024 or later).
- Apprenticeship ratio requirements: Taxpayers or contractors must ensure that they are meeting the applicable apprentice-to-journeyworker ratios determined either by DOL’s Office of Apprenticeship or the state apprenticeship agency.
- Apprenticeship participation requirements: Each taxpayer or contractor that has four or more employees working on a project must employ at least one registered apprentice. This is an overall project headcount.
All three of these apprenticeship requirements must be met in order for the taxpayer to satisfy PWA and avoid costly cure provisions.4 These requirements only apply during the construction of the facility. Once the facility is placed in service, apprenticeship requirements no longer apply.
It is important to note that to count as Qualified Apprentices, apprentices must be enrolled in a Registered Apprenticeship Program, which means a program that is approved by the DOL’s Office of Apprenticeship or a State Apprenticeship Agency.
For information on and assistance with navigating the Registered Apprenticeship System or Registering an Apprenticeship Program, please visit SEIA’s Apprenticeships in the Solar Industry page.
What is the taxpayer’s responsibility?
The “taxpayer” is the entity that claims the credit and, unlike with Davis-Bacon projects, is solely responsible for ensuring:
- Relevant laborers and mechanics are paid at least prevailing wage, whether employed directly or by a contractor or subcontractor;
- Apprenticeship requirements are satisfied; and
- Recordkeeping requirements are met, and any correction, exemption, or penalty provisions are followed.
What are recordkeeping requirements?
Taxpayers are responsible for keeping extensive records in order to satisfy PWA. Taxpayers may not rely on a contract that delegates PWA recordkeeping responsibility to contractors or subcontractors for compliance. Unredacted records must be made available to the IRS if requested.
What are potential penalties and cure provisions?
A taxpayer that did not pay prevailing wage rates may claim the credit by paying workers the difference between the prevailing wage rates and the amount paid, plus interest, and a penalty of $5,000 for each underpaid worker. For intentional disregard of the requirements, the taxpayer must pay workers three times the amount of the underpayment and a penalty of $10,000 times the number of underpaid workers.
A taxpayer that has failed to satisfy the apprenticeship requirements may claim the credit bonus by paying a penalty of $50 ($500 for intentional disregard) times the number of non-complying labor hours.
1 The PWA credit bonus is available for credits under Sections 17D, 30C, 45, 45Q, 45V, 45Y, 45Z, 48, 48C, and 48E. The prevailing wage requirement, but not the apprenticeship requirement, applies to Sections 45L and 45U.
2 A project begins construction once either 1) physical work “of a significant nature” has started, or 2) the taxpayer has at least incurred 5% of the total cost of the project. Construction must be continuous once started.
3 Repair or alteration work improves the facility or corrects individual problems or defects. Maintenance work, which keeps the facility in its current condition for continued use, is not included.
4A taxpayer will be considered compliant with the apprenticeship requirements if they request apprentice(s) from a registered apprenticeship program that operates in the geographic area of the project, trains apprentices in relevant occupations, and customarily enters into agreements with employers for placement of apprentices, and this request was denied or received no response.
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