Notice 2022-61: Prevailing wage and apprenticeship requirements for energy credits and incentives
The Inflation Reduction Act of 2022 (IRA) amended, extended and created several different energy credits and incentives. Part of these modifications was the creation of new prevailing wage and apprenticeship (PWA) requirements. If a taxpayer meets these PWA requirements, the credit percentage may be increased up to five times the base percentage.
On November 29, 2022, the IRS released Notice 2022-61, which states the PWA requirements will not be enforced for projects that begin construction prior to January 30, 2023, which is 60 days after the publish date of the notice.
Qualifying credits and incentives
The tax incentives that qualify for an increased benefit (if both the prevailing wage and apprenticeship requirements are satisfied) include:
- § 30C: Alternative fuel vehicle refueling property credit
- § 45: Electricity produced from certain renewable resources
- § 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
- § 48E: Clean electricity investment credit
- § 179D: Energy-efficient commercial buildings deduction
The following incentives require only satisfaction of the prevailing wage requirements to qualify for the increased benefit:
- § 45L: New energy efficient home credit
- § 45U: Zero-emission nuclear power production credit
Exception to the PWA requirements
Since taxpayers who begin construction prior to January 30, 2023, are not required to meet the PWA standards in order to receive the multiplied benefit, Notice 2022-61 offers two established methods that a taxpayer may use to evidence the beginning of construction:
- By starting physical work of a significant nature (Physical Work Test)
- By paying or incurring 5% or more of the total cost of the facility (Five Percent Safe Harbor Test).
Under the Physical Work Test, construction of a facility begins when physical work of a significant nature begins. This test focuses on the nature of the work performed, not the amount or the costs. Under the Five Percent Safe Harbor Test, construction of a facility will be considered as having begun if a taxpayer pays or incurs 5% or more of the total cost of the facility. Property that is manufactured, constructed or produced for the taxpayer by another party is deemed incurred by the taxpayer when the costs are incurred by the other party.
Taxpayers must demonstrate either continuous construction or continuous efforts with regard to the project regardless of whether they are using the Physical Work Test or the Five Percent Safe Harbor Test.
Satisfying prevailing wage and apprenticeship requirements
Unless a specific exemption applies, for projects beginning on or after January 30, 2023, taxpayers must meet the PWA requirements in order to receive the enhanced benefit.
To meet the prevailing wage requirements, a taxpayer must ensure that any laborers and mechanics employed by the taxpayer, or any contractor or subcontractor in the construction and alteration or repair of such facility, are paid wages at rates not less than the prevailing rates for construction, alteration or repair of a similar character in the locality.
To meet the apprenticeship requirements, taxpayers must ensure that not less than the applicable percentage of the total labor hours of the construction, alteration or repair work is performed by qualified apprentices. The applicable percentage is:
- 10% in the case of a qualified facility that begins construction before January 1, 2023.
- 12.5% in the case of a qualified facility that begins construction after December 31, 2022, and before January 1, 2024.
- 15% in the case of a qualified facility that begins construction after December 31, 2023.
For taxpayers who do not meet the PWA requirements, there are correction and penalty mechanisms. Because they can result in large decreases in the available benefit, they should be avoided.
Wipfli can help
Do you have questions about the IRA’s energy credits and incentives and how to qualify for them? Wipfli can help you navigate the complexities. Contact us to learn more.
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