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 new 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.

Update: On June 18, 2024, ABC issued a press release on the IRS’s announcement of a final rule published in the federal register June 25, 2024, effective August 26, 2024. It was picked up in multiple media outlets. Stay tuned for more analysis on the final rule. In the interim, review this ABC Newsline article and an ABC members-only recording of our July 11, 2024 webinar on the final rule.

In addition, please review the IRS press release, IRS PWA Overview, IRS PWA Fact Sheet, IRS FAQs, and White House Fact Sheet. The U.S. DOL’s Prevailing Wage and the Inflation Reduction Act Overview and the U.S. Treasury and U.S. DOL Blog Post on Project Labor Agreements may be of additional interest.

On Oct. 30, 2023 ABC submitted comments to the IRS and issued an Oct. 31 press release and promoting its comments in response to the Treasury’s Aug. 29, 2023, proposed rule and FAQs to providing additional guidance for the IRA’s new prevailing wage and apprenticeship requirements.

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 may need to provide additional clarity to the regulated community for developers and contractors to have certainty to finance and build these projects.

3. When Will the Prevailing Wage and Apprenticeship Requirements Apply to Clean Energy Construction Projects?

Prevailing wage and apprenticeship requirements outlined in the IRA statute 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.  

Of note, the IRS PWA NPRM raised additional confusion about whether the Nov. 30, 2022, initial IRS guidance or the NPRM should be followed prior to the issuance of final regulations:

“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

The IRS final rule issued in June 2024 states:

“These regulations apply to qualified facilities placed in service in taxable years ending after June 25, 2024, and the construction of which begins after June 25, 2024. Taxpayers may choose to apply these regulations to qualified facilities placed in service in taxable years ending on or before June 25, 2024, and qualified facilities placed in service in taxable years ending after June 25, 2024, the construction of which begins before June 25, 2024, provided that taxpayers follow these regulations in their entirety and in a consistent manner. Taxpayers may also continue to rely on the Proposed Regulations with respect to construction of a qualified facility beginning on or after January 29, 2023, and on or before June 25, 2024, 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.

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