The Treasury and the IRS issue final regulations regarding applicable wage and work experience requirements

The Department of the Treasury and the Internal Revenue Service (IRS) have published final regulations regarding applicable pay and apprenticeship (PWA) requirements associated with increased credit or deduction amounts for certain clean energy incentives under the Inflation Reduction Act (IRA). These regulations provide guidance on how taxpayers can qualify for enhanced benefits by meeting certain labor standards.

The IRA contains provisions that increase the base amount of certain clean energy credits or deductions by five times for PWA-eligible taxpayers. These requirements apply to the construction, reconstruction, or repair of clean energy facilities, properties, projects, or equipment.

IRS Commissioner Danny Werfel stated, “Greater credit or deduction for taxpayers who meet applicable wage and apprenticeship requirements creates opportunities for both employees and employers. The IRS makes every effort to ensure that taxpayers claiming clean energy credits meet all applicable wage and work experience requirements.

To qualify for the increased credit or deduction amounts, taxpayers must:

Ensure that workers and mechanics are paid at a level not less than prevailing wage rates.
Hire qualified apprentices from registered apprenticeship programs.
Meet specific recordkeeping and reporting requirements.

These requirements apply to all contractors and subcontractors involved in construction, reconstruction or repair work. However, the ultimate responsibility for compliance lies with the taxpayer claiming the increased relief or deduction.

Ensuring compliance with PWA requirements and other clean energy tax credits is a top priority for the IRS. Significant resources will be devoted to promoting and enforcing the final regulations in the coming months. The IRS plans to work closely with taxpayers, advisors and stakeholders through educational and outreach activities supported by IRA funding.

To help with compliance, the IRS has published several publications, including:

Publication 5983, IRA Prevailing Compensation and Apprenticeship Requirements Fact Sheet
Publication 5855, Overview of Prevailing IRA Salaries and Registered Apprenticeships
A set of frequently asked questions regarding PWA requirements

Publication 5855 summarizes the PWA requirements, while the Frequently Asked Questions (FAQ) provides detailed information and guidance on reporting suspected tax violations related to the PWA requirements. The IRS takes these reports seriously and may use information received during audits.

The PWA provisions include a penalty framework designed to encourage real-time compliance. To avoid penalties and ensure eligibility for increased credit or deduction amounts, taxpayers should establish a robust compliance framework. This includes reviewing payroll records, ensuring contracts require compliance with PWA requirements, and maintaining appropriate employee and mechanic classifications.

Additional compliance steps may include:

Regularly reviewing applicable pay rates and the percentage of hours worked by qualified apprentices.
Displaying applicable wage rates in a visible place or notifying employees and mechanics in writing.
Establish procedures for reporting suspected non-compliance without fear of retaliation.
Contact the Department of Labor’s Office of Apprenticeships or appropriate state agencies for assistance in finding registered apprenticeship programs.

The U.S. Department of Labor (DOL) establishes prevailing wage rates for each classification of laborers and mechanics in specific geographic areas. More information about these rates can be found on the DOL website.

To ensure regulatory compliance, the DOL and IRS are working on a memorandum of understanding (MOU) that is expected to be signed by the end of the year. This MOU will facilitate collaborative education, public outreach, and development of training content for IRS staff. This will also enable the DOL to provide credible guidance or information about potential noncompliance with IRS regulations.

For more information, visit the Inflation Reduction Act of 2022 page on IRS.gov.

Photo: Envato