The IRS released Notice 2022-61 (the Notice) on November 30, 2022, which provides guidance on the Prevailing Wage and Apprenticeship Requirements under the Inflation Reduction Act of 2022 (IRA). The Notice provides clarity to the requirements taxpayers must satisfy in order to qualify for the enhanced credit amounts for several clean energy credits established in the IRA – namely, what constitutes a prevailing wage and determines a qualified apprenticeship. The Notice details the recordkeeping requirements taxpayers must fulfill in order to demonstrate prevailing wages were paid and apprenticeship requirements were satisfied.
Prevailing Wage & Apprenticeship Requirements
The Notice states that in order to meet the requirements for prevailing wage, the taxpayer must ensure the employed laborers and/or mechanics “…are paid wages at rates not less than the prevailing rates for construction, alteration, or repair of a similar character in the locality in which such facility is located as most recently determined by the Secretary of Labor…”
A taxpayer satisfies the apprenticeship requirements if:
| (1) | The taxpayer satisfies the Apprenticeship Labor Hour Requirements, subject to any applicable Apprenticeship Ratio Requirements |
| (2) | The taxpayer satisfies the Apprenticeship Participation Requirements; and |
| (3) | The taxpayer maintains sufficient records. |
Under the Good Faith Effort Exception, the taxpayer will be considered to have made a good faith effort in requesting qualified apprentices if the taxpayer requests qualified apprentices from a registered apprenticeship program in accordance with usual and customary business practices for registered apprenticeship programs in a particular industry.
Qualifying Incentives
If both the prevailing wage and apprenticeship requirements are satisfied, the following tax incentives qualify for an increased benefit:
30C Alternative Fuel Vehicle Refueling Property Credit
45 Electricity Produced From Certain Renewable Sources
45Q Credit for Carbon Oxide Sequestration
45V Credit for Production of Clean Hydrogen
45Y Clean Electricity Production Credit
45Z Clean Fuel Production Credit
48 Renewable Energy Investment Credit
48C Qualifying Advanced Energy Product Credit
48E Clean Electricity Investment Credit
179D Energy-efficient Commercials Buildings Deduction
If only the prevailing wage requirements are met, only the following qualify for the increased benefit:
45L New Energy Efficient Home Credit
45U Zero-emission Nuclear Power Plant Credit
Beginning of Construction
The requirements are mandated for projects beginning 60 days after the Treasury’s release of the guidance. As such, the requirements apply to project construction beginning on or after January 29, 2023. For projects started prior to January 29, 2023, Notice 2022-61 defines “Beginning of Construction” as fulfilling either of the Physical Work Test or Five Percent Safe Harbor methods. The Physical Work Test is defined as “starting physical work of a significant nature,” while the Five Percent Safe Harbor method entails “paying or incurring five percent or more of the total cost of the facility.”
In other words, if you have started work on a project between November 30, 2022 and on or before January 29, 2023 and, it is significant in nature or you have incurred 5% or more of the costs, you would qualify for these enhanced deductions and credits. After January 29, you must meet the prevailing wage and/or apprenticeship requirements to receive the enhanced deductions or credits.
Further clarification of this guidance is expected. Your construction industry and tax experts at VonLehman will be monitoring the situation closely to interpret future updates. Please contact your VonLehman representative with any questions surrounding this new guidance.
