The Treasury Department issued initial guidance on Nov. 29 outlining the new wage and apprenticeship requirements companies must follow to qualify for clean energy tax credits under the Inflation Reduction Act.
“The historic Inflation Reduction Act that President Biden signed into law earlier this year puts in place tax incentives across the energy sector that will drive renewable energy investment and economic growth while ensuring the jobs created from this investment and growth are good-paying ones, with strong labor protections,” Treasury Secretary Janet Yellen said in a statement on Tuesday. “Workers should benefit from the clean energy economy they’re helping build. The guidance announced today provides firms greater clarity on how to meet the labor standards embedded in the bill to maximize the available tax credits.”
The Inflation Reduction Act, which became law in August, invests $369 billion toward tackling climate change through clean energy initiatives. Nearly three-quarters of that climate change investment—an estimated $270 billion—is delivered through tax incentives.
Under the law, the requirements apply to qualifying facilities, projects, property, or equipment for which construction begins 60 days or more after Treasury publishes guidance. The guidance, which was published in the Federal Register on Wednesday, begins that 60-day “clock,” meaning these requirements will apply to qualifying facilities, projects, property, or equipment for which construction begins on or after Jan. 29, 2023, according to the Treasury Department.
To qualify for the tax incentives, companies need to pay workers a prevailing wage for their geographical area and job classification, which are determined by the Labor Department and can be found on its sam.gov website. If no prevailing wage determination is posted for a specific geographic area and/or job classification, the Treasury Department said companies should contact the Labor Department’s Wage and Hour Division via email to receive labor classifications and wage rates to use.
In addition, companies must employ a certain number of apprentices from registered apprenticeship programs to qualify for the tax incentives, according to the Treasury Department.
“The guidance provides greater specificity regarding the apprenticeship labor hour, ratio, and participation requirements,” the Treasury Department said. “The guidance also describes the good faith effort exception in which a taxpayer makes a good faith effort in requesting qualified apprentices from registered apprenticeship programs.”
Both the prevailing wage and apprenticeship requirements apply to the following tax incentives:
- Advanced Energy Project Credit
- Alternative Fuel Refueling Property Credit
- Credit for Carbon Oxide Sequestration
- Clean Fuel Production Credit
- Credit for Production of Clean Hydrogen
- Energy Efficient Commercial Buildings Deduction
- Renewable Energy Production Tax Credit
- Renewable Energy Property Investment Tax Credit
The prevailing wage requirements also apply to the following tax incentives:
- New Energy Efficient Home Credit
- Zero-Emission Nuclear Power Production Credit
The Treasury Department also provided guidance related to the tax incentives for companies on recordkeeping requirements and establishing the date of beginning of construction.
The Treasury Department said it plans to issue additional proposed regulations with respect to these requirements in the coming months.
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Tags: Income Tax, IRS, Taxes
