Update to Guidance on Inflation Reduction Act of 2022 – Prevailing Wage and Apprenticeship Training Requirements – With Guidance from Notice 2022-61

On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 (the Act), which extends and expands existing tax credits and adds several new energy tax credits to encourage the production of clean energy and reduce carbon emissions. On November 30, 2022, the Internal Revenue Service published Notice 2022-61 (the Notice) providing initial guidance on the Inflation Reduction Act’s Prevailing Wage and Apprenticeship Requirements.

Under the Act, taxpayers who satisfy specified prevailing wage and apprenticeship requirements may qualify for increased credit amounts under Sections 30C (Alternative Fuel Vehicle Refueling Property Credit), 45 (Renewable Electricity Production Credit), 45Q (Credit for Carbon Oxide Sequestration), 45V (Credit for Production of Clean Hydrogen), 45Y (Clean Electricity Production Credit), 45Z (Clean Fuel Production Credit), 48 (Energy Credit), 48C (Qualifying Advanced Energy Project Credit) and 48E (Clean Electricity Investment Credit) or an increased deduction amount under Section 179D (Energy Efficient Commercial Building Deduction) of the Internal Revenue Code (the Code).

Those who satisfy prevailing wage requirements may also claim an increased credit amount under Sections 45L (New Energy Efficient Home Tax Credit) of the Code and 45U (Zero-Emission Nuclear Power Production Credit) of the Code.

Prevailing Wage Requirements

Obtaining Prevailing Wage Information from the Department of Labor

Taxpayers looking to comply with the Prevailing Wage Requirements must first determine if a prevailing wage has been published by the Secretary of Labor. Published prevailing wages can be found here.

If the Secretary of Labor has published a prevailing wage determination for both “the geographic area and types of construction applicable to the facility, including all labor classifications for the construction, alteration, or repair work that will be done on the facility by laborers or mechanics” then the taxpayer must pay that wage or greater in order comply with the Prevailing Wage Requirement.

However, if the Secretary of Labor has not published a prevailing wage for either the geographic area or one or more labor classifications for the construction, the taxpayer must request a wage determination or wage rate. In order to make this request, the taxpayer must contact the Department of Labor, Wage and Hour Division via email at IRAprevailingwage@dol.gov and include in the email the following information: (i) type of facility, (ii) facility location, (iii) proposed labor classifications, (iv), proposed prevailing wage rates, (v) job descriptions and duties and (vi) rationale for the proposed classifications.

Recordkeeping Requirements

The Notice references recordkeeping multiple times and states that the recordkeeping of the taxpayer must generally comply with the recordkeeping requirements under Sections 6001 of the Code¹ and 1.6001-1 of the Treasury Regulations. The taxpayer must maintain and preserve “sufficient records” demonstrating that contractors and subcontractors are paid wages not less than the prevailing wage.

One example provided in the Notice laid out records kept by a hypothetical taxpayer who would be determined to have satisfied the Prevailing Wage Requirements. These records maintained by the hypothetical taxpayer include “identification of the applicable wage determination, the laborers and mechanics who performed construction work on the facility, the classifications of work they performed, their hours worked in each classification, and the wage rates paid for the work.”

Additional examples provided in the Notice state that if the taxpayer was required to contact the Secretary of Labor to determine a prevailing wage, adequate recordkeeping would include maintaining records of the additional prevailing wage rates provided by the Department of Labor to demonstrate compliance with the Prevailing Wage Requirements.

Apprenticeship Requirements

Information on Determining Construction Start Date

One key provision from the Notice relates to grandfathered projects. The Notice states that projects beginning construction prior to 60 days after the publication date will avoid application of the Prevailing Wage and Apprenticeship Requirements. The Notice states that its publication date (November 30, 2022) is the start date for the 60-day period meaning that construction with a start date on or before January 29, 2023, will be considered a grandfathered project. Correspondingly, projects with a start date on or after January 30, 2023, must satisfy the Prevailing Wage and Apprenticeship Requirements to receive the increased tax credit.

Two Methods under the Notice to Determine Construction Start Date

Additionally, the Notice works to confirm that taxpayers may rely on previously released guidance regarding methods to determine a construction start date: (1) Physical Work Test and (2) Five-Percent Safe Harbor. Under the Physical Work Test the taxpayer needs to show that physical work of a significant nature has begun and under the Five-Percent Safe Harbor the taxpayer needs to show that at least 5% of the project’s costs have been incurred. Regardless of which method, the taxpayer chooses to use to determine the construction start date, they must also satisfy the Continuity Requirement.

Under the Continuity Requirement, taxpayers must demonstrate either continuous construction or continuous efforts. The IRS has recognized a Continuity Safe Harbor whereby a taxpayer automatically satisfies the Continuity Requirement if the qualified facility “is placed in service no more than four calendar years after the calendar year during which construction of the qualified facility began for purposes of Sections 45 and 48 of the Code, and no more than six calendar years after the calendar year during which construction of the qualified facility or carbon capture equipment began for purposes of Section 45Q of the Code.

Information on How to Register for an Apprenticeship Program

In order for apprentices to be able to apply for an apprenticeship opportunity for a specific taxpayer, taxpayers must register to become an authorized sponsor through the Department of Labor’s Apprenticeship Program. The first step of filing an application is completing the Standards Builder.

Once a taxpayer completes the Standards Builder, a skilled Apprenticeship Consultant will contact the taxpayer to finalize the registration process. Once a taxpayer’s proposed apprenticeship opportunity is approved, registered apprentices can begin applying to the taxpayer’s apprenticeship program.

Further Notes on Qualified Occupations

When completing the Standards Builder, the taxpayer will be asked to select an occupation from a pre-approved list of occupations. If a taxpayer would like to register an occupation that has not been pre-approved by the Department of Labor, then the taxpayer must follow the instructions here to request a new apprenticeship occupation.