February 15, 2023

Leveraging the Prevailing Wage and Apprenticeship Requirements of the Inflation Reduction Act

By Michele Johnson, Director, Tax & Business Services

Leveraging the Prevailing Wage and Apprenticeship Requirements  of the Inflation Reduction Act Tax Credits & Incentives

The Inflation Reduction Act (“IRA”) was developed specifically to combat climate change through the creation of tax credits. Notice 2022-61 (“Notice”) explains the Prevailing Wage and Apprenticeship Requirements of the Inflation Reduction Act (“IRA”), which are the cornerstones of virtually all the clean energy tax subsidies found within the IRA. When certain wage or apprenticeship requirements are met, taxpayers may receive increased tax benefits. Projects failing to meet these requirements risk forfeiting up to 80% of their potential available tax credits.


Originally signed into law by President Biden in August 2022, the IRA’s climate and clean energy tax credits have the potential to create more than one million jobs in energy and related manufacturing sectors over the next 10 years and provide taxpayers with a strong incentive to meet higher labor standards as they develop new projects.

Beginning of Construction

One of the requirements is meeting the “beginning of construction” standard. This standard is not new to the renewable energy industry and is a key tenet of the IRA. Historically, a taxpayer could demonstrate beginning of construction by satisfying either the Physical Work Test or the Five Percent Safe Harbor. Once a project begins construction, it must satisfy a continuity requirement, unless it is placed into service within a safe harbor period. To avoid these requirements, the project must be a facility with a maximum net output of less than one (1) megawatt or must have begun construction on or before January 29, 2023.

Prevailing Wage and Determination

A prevailing wage is the combination of the basic hourly wage rate and any fringe benefits rate paid to workers in a specific classification where construction, alteration, or repair is performed, as determined under the Davis-Bacon Act. The Internal Revenue Code provides that the Secretary of Labor determines prevailing wages, and the Notice clarifies that the Secretary of Labor publishes prevailing wage determinations on www.sam.gov. A wage determination is the list of basic hourly wage rates and fringe benefit rates for each classification of laborers and mechanics in a predetermined geographic area (usually a county) for a particular type of construction.

The Notice requires a taxpayer to maintain records that establish that the taxpayer and the taxpayer’s contractor and subcontractor paid wages not less than such prevailing wage rates. Records may include, but are not limited to, identifying 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.

It is believed that taxpayers who fail to meet the Prevailing Wage Requirements will be allowed true-up payments equal to the shortfall, plus interest and a penalty of $5,000. However, if the failure to pay prevailing wages was due to “intentional disregard” of these rules, then the taxpayer must pay to each laborer or mechanic three times the sum of the shortfall and pay to the IRS a penalty of $10,000 per laborer and mechanic.


A taxpayer complies with the apprenticeship requirements for the IRA clean energy credits under Code Sec. 45(b)(8) if the following standards are met:

  • The Apprenticeship Labor Hour Requirements (Code Sec. 45(b)(8)(C)), subject to any applicable Apprenticeship Ratio Requirements (Code Sec. 45(b)(8)(B));
  • Apprenticeship Participation Requirements (Code Sec. 45(b)(8)(C)); and
  • General recordkeeping requirements are adhered to establish that the Apprenticeship Labor Hour and the Apprenticeship Participation Requirements have been satisfied.

The rules generally pertain to “qualified apprentices,” who are individuals employed by the taxpayer, contractor, or subcontractor participating in a Registered Apprenticeship program registered under the National Apprenticeship Act.

A good faith effort exception exists under the Notice if the taxpayer requests qualified apprentices from a registered program and either the request is denied or the program fails to respond to the request within five (5) business days. A taxpayer can only rely on this exception if they maintain sufficient records documenting the request.


Under the IRA, projects that fail to satisfy the Prevailing Wage and Apprenticeship Requirements are eligible for only 20% of the tax credits for which they would otherwise qualify. The Notice further clarifies that many of the concepts surrounding the Prevailing Wage and Apprenticeship Requirements follow the well-established principles of the Davis-Bacon Act. However, the Notice leaves open many questions, including those raised by taxpayers in comment letters, around the application of these rules to real-world clean energy projects.

The Notice states that the IRS intends to issue further guidance, as well as proposed regulations, addressing many additional aspects of the Prevailing Wage and Apprenticeship Requirements.

In creating incentives for paying prevailing wages and utilizing qualified apprentices from registered apprenticeship programs in clean energy projects, the IRA will help expand well-paying union jobs and allow workers to earn while they learn. For both the Investment Tax Credit and Production Tax Credit, the IRA also provides bonus credits for meeting domestic content requirements, which will further support good-paying manufacturing jobs in the clean energy supply chain.