IRA / Prevailing WageOctober 20264 min read

IRS Finalizes Prevailing Wage and Apprenticeship Rules for IRA Tax Credits

The IRS has issued final regulations clarifying prevailing wage and apprenticeship requirements for projects claiming enhanced clean energy tax credits under the Inflation Reduction Act. Key changes affect how contractors document good-faith efforts to hire apprentices and what records must be retained for IRS audit purposes.

The IRS released final regulations under Treasury Decision 10000 addressing the prevailing wage and apprenticeship (PWA) requirements that apply to projects claiming the full 30% Investment Tax Credit and other enhanced clean energy credits under the Inflation Reduction Act. The final rules largely follow the proposed regulations issued in 2023 but include several important clarifications for contractors and project owners.

Under the final rules, contractors must pay Davis-Bacon prevailing wages to all laborers and mechanics on qualifying projects and must ensure that a minimum percentage of total labor hours are performed by registered apprentices — 10% for projects beginning construction in 2023, 12.5% in 2024, and 15% thereafter. The final regulations clarify that the apprenticeship requirement applies separately to each trade and occupation, not just to the project as a whole.

Critically, the final rules also address the 'good-faith effort' exception: if a contractor requests apprentices from a registered apprenticeship program and the program is unable to supply them within five business days, the contractor may satisfy the requirement without meeting the numerical ratio. However, contractors must document each such request and the program's response, and must make a new request for each project phase. The IRS has indicated it will scrutinize good-faith effort claims closely in audits.

Contractors who fail to meet the PWA requirements face a reduction in their tax credit from 30% to 6%, plus correction payments of back wages and interest. Willful violations carry an additional penalty of $5,000 per affected worker per year. The final regulations are effective for projects beginning construction on or after the date of publication in the Federal Register.

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