Inflation Reduction Act Overview

The contents of this blog post have been partially transcribed from our YouTube video, “Inflation Reduction Act (IRA) Overview”.

The Inflation Reduction Act, or, the IRA is the biggest investment in clean energy in the United States. The goal is to fight climate change and increase economic opportunity. The tax incentives are available to all taxpayers, corporate and private entities that meet the criteria within each tax provision. For many of these provisions come the inclusion of prevailing wage and apprenticeship requirements.

Table of Contents

Inflation Reduction Act (IRA) and Tax Credits

On August 16th, 2022, the Inflation Reduction Act was signed into action, providing tax incentives for several tax credit provisions that involve clean energy projects. 

One specific example Is the Production Tax Credit. This provides taxpayers the possibility of acquiring $2.60 per kilowatt hour credit for electricity produced at qualified facilities. To gain this credit, taxpayers would have to satisfy the prevailing wage and apprenticeship requirements, otherwise that credit is reduced.

In the context of the IRA, a taxpayer is anyone attempting to receive the tax credit or incentive, and this includes contractors.

The Davis-Bacon Act and the Related Acts itself are not subject under the IRA, including enforcement regulations. However, there are similarities in how certain provisions are derived. 

  • The IRA follows the same prevailing wage requirement as it pertains to “Laborers & Mechanics” under DBA.
  • Apprentices are expected to have the same certification requirements under DBA. 
  • What’s considered the “Site of Work” and “Construction, Alteration, and Repair” are defined the same both under DBA and IRA.

Requirements to Obtain Tax Credits

The IRS 87 FR 73580 guidance outlines requirements for obtaining tax credits. The two main ones to be found for prevailing wage are (1) the payment of prevailing wage rates and (2) maintaining records. The applicable rates are to be found for laborers and mechanics as defined at 29 CFR 5.2(m), performing construction, alteration, or repair. 

Remember, there is no exception for independent contractors.

Maintaining Records

Section 16.001-1(a) of the Income Tax Regulations states taxpayers must keep records to establish the amount of claimed credits. This documentation should include the applicable wage determination provided by the DOL and documentation showing each worker, their classification, gross pay, hours worked, and proper prevailing wage rate of pay. This includes the appropriate fringe benefits. It’s important that these records are maintained to prove the requirements are being met.

If a taxpayer fails to pay prevailing wage rates, they can still be considered to have satisfied the requirements if they:

  1. Pay the laborers or mechanics the difference between the paid wages and the prevailing wage rates, plus interest of 3%; and
  2. Pay a $5,000 fine per laborer or mechanic who was underpaid, to the Secretary of Labor

This fine increases to three times the sum of (a) and $10,000 per violation if it was found to have been an intentional underpayment.

The IRA Proposed Rules

On August 29th, 2023, the IRS and the Treasury issued “proposed rules” that would update the PWA (prevailing wage and apprenticeship) requirements under the Inflation Reduction Act. The document provides clarification on many issues that arose after the original guidance was published in November of 2022. Some of the highlights include: 

  • A denial of a request for a qualified apprentice would not automatically qualify the taxpayer for the Good Faith Effort Exception. There would be a requirement to resubmit a request for apprentices every 120 days, in the event of a valid denial by the apprenticeship program. 
  • A new general wage determination is required to be used when a contract is changed to include additional, substantial construction, alteration, or repair work not within the scope of work of the original contract, or to require work to be performed for an additional time period not originally obligated. 
  • Apprentices not in a Registered Apprenticeship Program, or not supervised at the correct ratio, must be paid at the full prevailing wage rate for the classification and cannot have those hours counted towards the Apprentice Labor Hour Requirement. 

Many major topics are addressed, including cure and penalty provisions for failure to meet the requirements. Any taxpayer wishing to claim the increased tax credits should ensure that they are familiar with these proposed regulations. Alliant is here to help answer any questions, help clients stay informed, and to ensure full compliance with all of the IRA PWA requirements. If you’d like any further assistance, feel free to contact us.