The Internal Revenue Service (IRS) issued final regulations on June 18, 2024, with guidelines on the prevailing wage and apprenticeship (PWA) requirements related to increased credit amounts for certain clean energy incentives, established through the Inflation Reduction Act (IRA) of 2022. These final regulations affect taxpayers intending to satisfy the PWA requirements to be eligible for increased amounts of federal income tax credits or an increased deduction, including those intending to make elective payment elections for available credit amounts and those intending to transfer increased credit amounts.
The increased credit amounts were enacted in the IRA for taxpayers who satisfy certain PWA requirements regarding the construction, alteration, or repair of certain clean energy facilities or properties, projects, or equipment. Satisfying the requirements allows taxpayers to generally increase the base amount of the credit or deduction by five times.
Credit Qualifications
To qualify for the PWA increased credit or deduction amounts, taxpayers generally are required to:
- Ensure that laborers and mechanics employed in the construction, alteration, or repair of the facility or property, project, or equipment are paid wages at rates not less than “applicable prevailing wage” rates, as established by the Department of Labor;
- Meet certain requirements related to employing qualified apprentices from registered apprenticeship programs; and
- Meet specific recordkeeping and reporting requirements.
These requirements apply to all contractors and subcontractors of the taxpayer who employ laborers and mechanics in the project, with the burden of proof of compliance on the taxpayer claiming the credit.
Compliance Guidance
Ian Boccaccio, Principal and Practice Leader in Ryan’s Income Tax practice, adds: “This final guidance provides clarity on the nuances of PWA requirements and provides taxpayers additional relief on certain exceptions and curation provisions.”
In an effort to educate taxpayers and support compliance with the increased credit rules, the IRS also released Publication 5983, IRA Prevailing Wage and Apprenticeship Requirements Fact Sheet, updated Publication 5855, IRA Prevailing Wage and Registered Apprenticeship Overview with a summary of the PWA requirements, and a frequently asked questions link.
With the potential for significant penalties for noncompliance with the rules and to benefit from the increased credit or deduction amounts, taxpayers should take the following steps to comply with associated reporting and recordkeeping requirements:
- Review payroll records regularly;
- Include in all contracts provisions that contractors and their subcontractors follow PWA requirements, which can be found on the Department of Labor’s website;
- Review the classifications of laborers and mechanics, prevailing wage rates, and percentage of labor hours to be performed by qualified apprentices regularly;
- Post information about prevailing wage rates in a prominent and accessible location or otherwise provide written notice of prevailing wage rates to laborers and mechanics during construction, alteration, and repair work.
- Establish procedures for individuals to report suspected failures to comply with the PWA requirements without fear of retaliation or adverse action;
- Investigate reports of suspected failures to comply with the PWA requirements; and
- Reach out to the Department of Labor or state apprenticeship agencies for assistance in locating registered apprenticeship programs.
Scott Stogsdill, Director in Ryan’s Federal Income Tax practice, noted: “The PWA requirements are not as onerous as many feared with the passing of the IRA. There are clear work arounds and safe harbors. The catch is to plan ahead.”
For additional information on how these regulations impact your business, please contact our Ryan tax professionals below.
TECHNICAL INFORMATION CONTACTS:
Ian Boccaccio
Principal
Ryan
469.399.4545
ian.boccaccio@ryan.com
Scott Stogsdill
Director
Ryan
469.399.4496
scott.stogsdill@ryan.com
The material presented in this communication is intended to provide general information only and should solely be seen as broad guidance and not directed to the particular facts or circumstances of any individual who may read this publication. No liability is accepted for acts or omissions taken in reliance upon the content of this piece. Before taking (or not taking) any action, readers should seek professional advice specific to their situation from Ryan, LLC or other tax professionals. For additional information about this topic, please contact us at info@ryan.com.
- Topics
- Ian Boccaccio