On August 29, 2023, the Department of the Treasury and the Internal Revenue Service (IRS) released a Notice of Proposed Rulemaking (NPRM) on the prevailing wage and apprenticeship provisions of the Inflation Reduction Act. More information about the proposed rule can be found on the IRS Website.

Overview 

On August 16, 2022, President Biden signed Public Law 117-369, 136 Stat. 1818, commonly known as the Inflation Reduction Act of 2022, into law. Under the Inflation Reduction Act, taxpayers may receive increased tax benefits by meeting prevailing wage and apprenticeship requirements. By statute, the prevailing wage and apprenticeship requirements generally apply to qualifying facilities where construction begins 60 days or more after the U.S. Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) publish guidance on those requirements.

On November 30, 2022, Treasury and the IRS published guidance on the Inflation Reduction Act's prevailing wage and apprenticeship requirements. The publication of guidance on November 30 starts the 60-day period, meaning in order to receive increased incentives, taxpayers must meet the prevailing wage and apprenticeship requirements for facilities where construction begins on or after January 29, 2023.

Learn More About Prevailing Wages and the Inflation Reduction Act 

Critical to providing good-paying jobs, the Inflation Reduction Act offers enhanced tax benefits for a range of clean energy projects to taxpayers that ensure Davis-Bacon Act prevailing wages are paid to workers on such projects, and that registered apprentices are utilized, in accordance with the Inflation Reduction Act. 

The Inflation Reduction Act is by far our nation’s largest investment in clean energy solutions to date. By pairing climate investment with the creation of good-paying jobs, the Inflation Reduction Act’s unparalleled investments to fight the climate crisis will help improve job quality in clean energy industries and incentivize the expansion of workforce training pathways into these jobs.

The Inflation Reduction Act’s prevailing wage and apprenticeship provisions apply to the:

  • Alternative Fuel Refueling Property Credit
  • Production Tax Credit
  • Credit for Carbon Oxide Sequestration
  • Credit for Production of Clean Hydrogen
  • Clean Fuel Production Credit
  • Investment Tax Credit
  • Advanced Energy Project Credit
  • Energy Efficient Commercial Buildings Deduction

In addition, the Inflation Reduction Act’s prevailing wage provisions apply to the:

  • New Energy Efficient Home Credit
  • Zero-Emission Nuclear Power Production Credit

In general, taxpayers that wish to take advantage of an enhanced clean energy tax benefits must ensure that all laborers and mechanics are paid the applicable prevailing wage, including fringe benefits, for all hours performing construction, and in some cases alteration or repair, on the site of the work of a qualified facility. A prevailing wage is the combination of the basic hourly wage rate and any fringe benefits rate, paid to workers in a specific classification of laborer or mechanic in the area where construction, alteration, or repair is performed, as determined by the Secretary of Labor. The Wage and Hour Division posts labor classifications and their prevailing wage rates in wage determinations on sam.gov.Review our guide to help you navigate sam.gov.

As explained in IRS Notice 2022-61, taxpayers must keep records sufficient to establish, among other things, the amount of any credit or deduction claimed. Therefore, for purposes of showing compliance with the Inflation Reduction Act’s prevailing wage provisions, the taxpayer must maintain records that are sufficient to establish that the taxpayer and the taxpayer’s contractor and subcontractor paid wages not less than such prevailing wage rates. Such records could include, but are not limited to, documentation 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.

We Can Help

The Wage and Hour Division recognizes that the Inflation Reduction Act’s historic commitment to clean energy infrastructure means that many taxpayers and contractors may be encountering prevailing wage provisions for the first time. The Wage and Hour Division stands ready to assist taxpayers and contractors to ensure that they understand their responsibilities to secure compliance with the Inflation Reduction Act’s prevailing wage provisions.

 

Other Resources

 

Frequently Asked Questions (FAQs)

To potentially qualify for increased credit or deduction amounts of certain clean energy tax incentives under the Inflation Reduction Act, taxpayers generally need to ensure laborers and mechanics are paid no less than applicable prevailing wage rates and employ apprentices from registered apprenticeship programs for a certain number of hours. By meeting the necessary prevailing wage and apprenticeship requirements, taxpayers can increase the base amounts of many clean energy tax incentives by five times. There are limited exceptions, for certain small facilities that produce clean energy under one megawatt and facilities on which construction began before January 29, 2023, where taxpayers may be eligible to claim the tax credit enhancements without meeting the prevailing wage and apprenticeship requirements.

Treasury and the IRS released a Notice of Proposed Rulemaking (NPRM) on August 29, 2023. The regulations set forth in the NPRM are proposed to apply to facilities, property, projects, or equipment placed in service in taxable years ending after the date these regulations are published as final in the Federal Register and the construction or installation of which begins after the date these regulations are published as final regulations in the Federal Register. However, taxpayers may rely on the proposed regulations with respect to construction or installation of a facility, property, project, or equipment beginning on or after January 29, 2023, and on or before the date the regulations are published as final regulations in the Federal Register, provided, that beginning after the date that is 60 days after August 29, 2023, taxpayers follow the proposed regulations in their entirety and in a consistent manner. All references to sections of 26 CFR 1.45 in these FAQs refer to regulatory provisions proposed in this NPRM.

These FAQs are being provided for background information purposes only and do not constitute official IRS tax guidance. Publications in the Federal Register and Internal Revenue Bulletin represent authoritative Internal Revenue Service guidance. Please visit https://www.irs.gov/credits-deductions/prevailing-wage-and-apprenticeship-requirements for information on the prevailing wage and apprenticeship requirements of the IRA.

 

PREVAILING WAGES UNDER THE INFLATION REDUCTION ACT

Are taxpayers that claim increased tax credit and deduction amounts responsible for ensuring that employees of contractors and subcontractors are paid prevailing wages?

Yes. Unless an exception applies, taxpayers that are seeking an increased credit or deduction amount must ensure that laborers and mechanics employed by the taxpayer, or any contractor or subcontractor in the construction, alteration, or repair of a facility are paid prevailing wages (wages at rates that are not less than the prevailing rates determined by the Department of Labor in accordance with the Davis-Bacon Act).

This FAQ has been republished on this webpage for the reader's convenience and may be updated intermittently to reflect IRS guidance. For the official version of this FAQ, please see IRS FAQ IRA Prevailing wage requirements Q2. 

For all other IRS FAQs on IRA prevailing wage requirements, see Frequently asked questions about the prevailing wage and apprenticeship under the Inflation Reduction Act.

In addition to complying with the prevailing wage provisions in order to benefit from the tax credits of the of the Inflation Reduction Act, are there non-tax wage and hour laws that contractors and subcontractors performing construction, alteration, or repair must comply with?

In addition to complying with the prevailing wage provisions of the Inflation Reduction Act all taxpayers, contractors, and subcontractors performing construction, alteration or repair on a qualified facility must ensure compliance with all applicable local, state and federal labor standards laws. This could include other Federal labor laws such as the Fair Labor Standards Act (FLSA), and state and/or local laws, including state minimum wage or prevailing wage laws. Such laws impose separate legal requirements from the Inflation Reduction Act.

What is a prevailing wage?

For purposes of complying with the prevailing wage provisions of the Inflation Reduction Act, the prevailing wage refers to the minimum wage rates that taxpayers must ensure are paid to laborers and mechanics performing construction of a facility, project, property, or equipment (hereafter referred to as a facility) and, in some cases, alteration or repair. A prevailing wage is the combination of the basic hourly wage rate and any fringe benefits rate, paid to workers in a specific classification of laborer or mechanic in the geographic area where construction, alteration, or repair is performed, as determined by the Secretary of Labor in accordance with subchapter IV of chapter 31 of title 40 of the United States Code, also known as the Davis-Bacon Act.

What does construction, alteration, or repair mean for purposes of the IRA prevailing wage and apprenticeship requirements?

Under the proposed regulations, the term construction, alteration, or repair generally means all types of work performed at the location of the facility. Construction, alteration or repair also includes, but is not limited to:

  • constructing, altering, remodeling, or installing of items fabricated offsite;
  • painting and decorating; and manufacturing or furnishing of materials, articles, and supplies or equipment at the location of the facility.

Construction, alteration, or repair does not include maintenance work that occurs on the facility.

Maintenance is work that is ordinary and regular in nature and designed to maintain existing functionality of a facility as opposed to an isolated or infrequent repair of a facility to restore specific functionality or adapt it for a different or improved use.

This FAQ has been republished on this webpage for the reader's convenience and may be updated intermittently to reflect IRS guidance. For the official version of this FAQ, please see IRS FAQ General requirements Q5.

For all other IRS FAQs on IRA prevailing wage requirements, see Frequently asked questions about the prevailing wage and apprenticeship under the Inflation Reduction Act .

To whom must the prevailing wages be paid to satisfy the prevailing wage requirements?

Prevailing wages must be paid to all laborers and mechanics employed by the taxpayer (or any contractor or subcontractor) in the construction, alteration, or repair of a facility. The requirement to pay prevailing wages applies to work performed at the location of the facility as well as any secondary work site that is established specifically for or dedicated exclusively for a specific period of time to, the construction, alteration, or repair of the facility. The prevailing wage rates for work performed at any secondary work site is determined based on the geographic area in which the secondary site is located.

Under the proposed regulations, the terms laborer and mechanic mean those individuals whose duties are manual or physical in nature (including those individuals who use tools or who are performing the work of a trade). The terms laborer and mechanic include apprentices and helpers. The terms do not include individuals whose duties are primarily administrative, executive, or clerical, rather than manual.

This FAQ has been republished on this webpage for the reader's convenience and may be updated intermittently to reflect IRS guidance. For the official version of this FAQ, please see IRS FAQ IRA Prevailing wage requirements Q1 .

For all other IRS FAQs on IRA prevailing wage requirements, see Frequently asked questions about the prevailing wage and apprenticeship under the Inflation Reduction Act .

Who is considered employed for the purposes of the IRA prevailing wage requirements?

The proposed regulations provide that a laborer or mechanic would be considered employed by the taxpayer (or contractor or subcontractor) if the individual performs the duties of a laborer or mechanic for the taxpayer (or contractor or subcontractor) regardless of whether the individual would be characterized as an employee or an independent contractor for other Federal tax purposes. The definition of employed for purposes of the prevailing wage requirements would generally be different and broader than the definition used elsewhere in the Internal Revenue Code, for example with respect to employment taxes, as well as the associated reporting and withholding obligations. Laborers and mechanics who are independent contractors for employment tax purposes may be considered employed for purposes of the IRA prevailing wage requirements.

This FAQ has been republished on this webpage for the reader's convenience and may be updated intermittently to reflect IRS guidance. For the official version of this FAQ, please see IRS FAQ General requirements Q6 .

For all other IRS FAQs on IRA prevailing wage requirements, see Frequently asked questions about the prevailing wage and apprenticeship under the Inflation Reduction Act .

What are the prevailing wage requirements of the IRA?

The prevailing wage requirements of the IRA provide that taxpayers must ensure that all laborers and mechanics employed by the taxpayer (or any contractor or subcontractor) on the construction, alteration, or repair of a qualified facility, project, property, or equipment (hereafter referred to as facility) are paid wages at rates that are not less than the prevailing rates determined by the Department of Labor in accordance with subchapter IV of chapter 31 of title 40 of the U.S. Code (the Davis-Bacon Act) for the type of work performed in the geographic area of the facility.

This FAQ has been republished on this webpage for the reader's convenience and may be updated intermittently to reflect IRS guidance. For the official version of this FAQ, please see IRS FAQ General Requirements Q2 .

For all other IRS FAQs on IRA prevailing wage requirements, see Frequently asked questions about the prevailing wage and apprenticeship under the Inflation Reduction Act .

 

INTERACTION BETWEEN THE PREVAILING WAGE PROVISIONS OF THE INFLATION REDUCTION ACT AND THE DAVIS-BACON AND RELATED ACTS AND OTHER LAWS

Is the Inflation Reduction Act a Davis-Bacon "Related Act?"

No. Congress has included Davis-Bacon prevailing wage requirements in over 70 laws, known as the Davis-Bacon "Related Acts," under which the Federal government provides assistance for construction projects through grants, loans, loan guarantees, insurance, and other methods. The Inflation Reduction Act is not one of these Davis-Bacon "Related Acts." While IRS guidance implementing the Inflation Reduction Act generally incorporates certain Davis-Bacon concepts and requirements, such as definitions of "site of the work" and "construction, alteration or repair," that are relevant to implementation of the Inflation Reduction Act's prevailing wage requirements, under the Inflation Reduction Act, a taxpayer is not subject to the regulations implementing the Davis-Bacon Act and the Related Acts (collectively, DBRA), including the regulations related to enforcement by the Department of Labor.

To qualify for enhanced tax benefits under the Inflation Reduction Act, taxpayers must comply with the prevailing wage and apprenticeship requirements as set forth in IRS guidance. Only where a facility is also funded or assisted through a "Davis-Bacon Related Act" does the taxpayer need to also comply with the additional requirements of the DBRA and their implementing regulations. For more information about compliance with Davis-Bacon and Related Act requirements, please see: https://www.dol.gov/agencies/whd/government-contracts/construction .

Do the Inflation Reduction Act's prevailing wage provisions have any impact on Davis-Bacon prevailing wage requirements for federal or federally assisted projects?

No. In order to qualify for enhanced tax benefits under the Inflation Reduction Act, taxpayers must comply with the prevailing wage requirements of the Inflation Reduction Act by ensuring that laborers and mechanics performing construction, alteration, or repair on a facility are paid at least the applicable prevailing wage rate established under the Davis-Bacon Act.

The Inflation Reduction Act is a separate law from the Davis-Bacon Act and the Related Acts, and the Inflation Reduction Act thus does not affect the implementation or application of the DBRA. The Inflation Reduction Act's prevailing wage requirements are implemented by the IRS. In contrast, the DBRA are implemented by the Department of Labor primarily through regulations located in parts 1, 3, and 5 of title 29 of the Code of Federal Regulations.

What is the difference between the Inflation Reduction Act Notice of Proposed Rulemaking and the Davis-Bacon and Related Acts final rule?

On August 8, 2023, the Department of Labor announced the issuance of the final rule, "Updating the Davis-Bacon and Related Acts Regulations." The final rule updates regulations issued under the Davis-Bacon and Related Acts that govern the administration and enforcement of the Davis-Bacon labor standards that apply to Federal and federally assisted construction projects.

On August 30, 2023, Treasury and the IRS issued Notice of Proposed Rulemaking, Increased Credit or Deduction Amounts for Satisfying Certain Prevailing Wage and Registered Apprenticeship Requirements]. The NPRM published proposed rules under the Inflation Reduction Act that would govern the administration and enforcement of the prevailing wage and apprenticeship provisions of the Inflation Reduction Act. The Inflation Reduction Act is administered and enforced by the IRS and only relates to certain tax credits specified in the Inflation Reduction Act and subsequent IRS guidance.

The Department of Labor's regulations implementing the DBRA and the Department of the Treasury's NPRM to implement the IRA set forth separate legal requirements.

Does the Inflation Reduction Act have any impact on state prevailing wage requirements or other wage and hour laws?

To potentially qualify for enhanced tax benefits under the Inflation Reduction Act, a taxpayer generally must ensure that laborers and mechanics performing construction, alteration, or repair on the facility are paid at least the applicable Davis-Bacon prevailing wage rate.

A taxpayer and its contractors and subcontractors may also be subject to other laws, and the applicability of such laws will not be affected by the Inflation Reduction Act. Specifically, any other "Wage and Hour" requirements that apply to an employer performing construction, alteration or repair at a facility (such as higher minimum wage requirements or different recordkeeping obligations) will continue to be applicable. This could include other Federal labor laws such as the Fair Labor Standards Act (FLSA), and state and/or local laws, including state prevailing wage laws. Such laws impose separate legal requirements from the Inflation Reduction Act and must be complied with where applicable.

 

UNDERSTANDING, OBTAINING AND APPLYING WAGE DETERMINATIONS

How does a taxpayer, contractor, or subcontractor know what prevailing wage rate(s) apply to the laborers and mechanics who perform construction, alteration or repair of a facility in order to qualify for enhanced energy tax benefits available under the Inflation Reduction Act?

A taxpayer that wishes to meet the prevailing wage requirements of the Inflation Reduction Act must ensure the payment of prevailing wage rates for the applicable classifications of laborers and mechanics for the construction, alteration, or repair of the facility. These wage rates are found in wage determinations published by the Wage and Hour Division of the U.S. Department of Labor on www.sam.gov . If a taxpayer, contractor, or subcontractor would like more information on finding wage determinations on www.sam.gov ., the Wage and Hour Division has published a step-by-step guide to obtaining the correct wage determination .

What is a general wage determination?

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. There are four types of construction for which general wage determinations are published: heavy; building; residential; and highway. More information regarding each of these four types of construction can be found in All Agency Memorandum 130 . General wage determinations are published by the Wage and Hour Division of the U.S. Department of Labor on www.sam.gov . If a taxpayer, contractor or subcontractor would like more information on wage determinations, the Wage and Hour Division has published a guide to understanding wage determinations and a guide to finding.

What is a supplemental wage determination?

For all qualifying facilities, the taxpayer should first consult www.sam.gov to identify the applicable wage determination. In very limited circumstances, a general wage determination may not have been published for the geographic area or for the specified type of construction applicable to the construction, alteration or repair of a qualified facility. In such circumstances, the taxpayer, contractor, or subcontractor may request the Wage and Hour Division to issue a supplemental wage determination applicable to the construction, alteration, or repair of that facility by emailing IRAprevailingwage@dol.gov and providing the required information identified in FAQ #16 below.

Upon receipt of the request for a supplemental wage determination, the Wage and Hour Division will determine whether an applicable general wage determination exists (in which case the request will be denied), and if no such general wage determination exists, the Wage and Hour Division will as appropriate issue a supplemental wage determination based on the available information (including any additional information requested and obtained to help determine the classifications and wage rates that should be included in the supplemental wage determination).

What should the taxpayer do if a wage determination that applies to their project does not include wage rates for all of the labor classifications of workers that will be needed for the construction, alteration, or repair of the facility?

The taxpayer and contractor or subcontractor should first compare the scope of work of the classifications listed on the applicable wage determination with the anticipated work to be performed to determine if any of the work is not performed by any classification on the applicable wage determination. If that comparison indicates that the anticipated work is not performed by any classification on the wage determination, the taxpayer, contractor, or subcontractor should request an additional classification for that work from the Wage and Hour Division by emailing IRAprevailingwage@dol.gov and providing the required information identified in FAQ #16 below.

Upon receipt of the request for an additional classification, the Wage and Hour Division will: (1) confirm that the applicable wage determination does not include a needed labor classification; (2) review the requested classification to verify that it is used in the area by the construction industry; and (3) review the proposed wage rate to verify that it bears a "reasonable relationship" to other wage rates in the wage determination, specifically those from the same category of classifications as the proposed classification. If all three criteria are satisfied, the Wage and Hour Division will approve the requested classification and wage rate. If only the first two criteria are satisfied, the Wage and Hour Division will approve the requested classification and will provide an appropriate wage rate.

What is the process for requesting a supplemental wage determination or additional classification?

The taxpayer, contractor or subcontractor should email requests for supplemental wage determinations or additional classifications to IRAprevailingwage@dol.gov . A taxpayer, contractor, or subcontractor should make such requests no more than 90 days before the beginning of construction, alteration, or repair, as appropriate (or as soon as practicable after the start of construction, alteration, or repair, in the instance where the taxpayer, contractor, or subcontractor cannot reasonably determine prior to the start of construction, alteration, or repair that a supplemental wage determination or an additional classification and wage rate is necessary).

The request should contain all relevant information, including: the name of the taxpayer, contractor, or subcontractor requesting the supplemental wage determination or wage rate; the general wage determination(s), if any, applicable to construction, alteration, or repair of the facility; a description of the work to be performed, including the type(s) of construction involved and, if the project involves multiple types of construction, information indicating the expected cost breakdown by type of construction; the geographic area in which the facility is being constructed, altered, or repaired, including the name and address of the facility (if known); the start date of construction, alteration, or repair at the facility; the labor classification(s) needed for performance of the work on the facility (excluding those for which wage rates are available on an applicable general wage determination); the duties to be performed by each such labor classification on the facility; and the proposed wage rate, including any bona fide fringe benefits, for each such labor classification.

Is it possible for more than one wage determination to apply to the construction, alteration, or repair of a qualified facility?

Yes. If construction, alteration, or repair of the facility takes place in more than one locality (i.e., if an applicable wage determination does not cover the entire geographic area in which construction of the facility will take place), then the applicable wage determination for each locality in which construction will take place will apply. In such circumstances, a taxpayer would also be able to satisfy the prevailing wage requirements by ensuring that laborers and mechanics are paid wages at the highest rate for each classification provided under the general wage determinations. A taxpayer would also be permitted to request a supplemental wage determination with respect to the facility and pay the rates determined by the Department of Labor pursuant to the request.

When should the taxpayer or contractor hired to perform construction, alteration or repair at the facility update the wage determination(s) that apply to the construction, alteration, or repair of a facility in order to comply with the prevailing wage provisions of the Inflation Reduction Act?

The applicable wage determination is the wage determination in effect at the time construction, alteration, or repair of the facility begins, which generally will remain valid for the duration of the work performed with respect to the construction, alteration, or repair of the facility by the taxpayer, contractor, or subcontractor.

Taxpayers who perform any alteration or repair of a facility after the facility is placed in service must use the applicable wage determination in effect at the time the alteration or repair work begins. Additionally, taxpayers would need to update the applicable wage determination when work on a facility is changed to include additional construction, alteration, or repair work not within the scope of work of the original project, or to require work to be performed for an additional time period not originally obligated, including where an option to extend the term of a contract for the construction, alteration, or repair is exercised.

What type of wage determination and labor classifications may be necessary to construct a utility-scale solar energy facility in compliance with prevailing wage provisions in the Inflation Reduction Act?

If a taxpayer is constructing a utility-scale solar energy facility and wishes to comply with the prevailing wage provisions of the Inflation Reduction Act, the taxpayer should identify the heavy construction wage determination for the area in which the facility is being constructed. Generally, labor classifications are based on trades or occupations and each labor classification encompasses many associated tasks, tools, and materials used by the labor classification. For example, "solar installation" is not a labor classification listed in a wage determination. The labor classifications that are typically needed to perform construction of a solar farm include but are not limited to laborers, electricians, equipment operators, ironworkers, carpenters and possibly truck drivers. A taxpayer or contractor should carefully review the applicable wage determination and direct any questions regarding the scope of a classification to the Wage and Hour Division.

What type of wage determination and labor classifications may be necessary to construct a wind energy facility in compliance with prevailing wage provisions in the Inflation Reduction Act?

If a taxpayer is constructing a wind energy project and wishes to comply with the labor standards provisions of the Inflation Reduction Act, the taxpayer should identify the heavy construction wage determination for the area in which the facility is being constructed. Generally, labor classifications are based on trades or occupations and each labor classification encompasses many associated tasks, tools, and materials used by the labor classification. For construction of a wind energy facility, the classifications that are typically needed to perform construction at the facility include but are not limited to laborers, electricians, equipment operators, carpenters, ironworkers, and possibly truck drivers. A taxpayer or contractor should carefully review the applicable wage determination and direct any questions regarding the scope of a classification to the Wage and Hour Division.

What wage determination applies to construction, alteration or repair of an offshore wind energy facility?

If an applicable general wage determination is not available, a supplemental wage determination may be requested. In lieu of requesting a supplemental wage determination for a facility located in an offshore area within the outer continental shelf of the United States, a taxpayer, contractor, or subcontractor may rely on the general wage determination for the relevant category of construction that is applicable in the geographic area closest to the area in which the qualified facility will be located.

 

COMPLIANCE WITH THE INFLATION REDUCTION ACT'S PREVAILING WAGE PROVISIONS

Should taxpayers, contractors, and subcontractors pay laborers and mechanics performing construction, alteration, or repair at a qualified facility the applicable prevailing wage rates while they are working at the facility?

Yes. All laborers and mechanics employed by the taxpayer or any contractor or subcontractor in the construction, alteration, or repair of a qualified facility should be paid at least the applicable prevailing wage rates while they are performing such work at the qualified facility.

In addition to complying with the prevailing wage provisions of the Inflation Reduction Act, all taxpayers, contractors, and subcontractors performing construction, alteration or repair on a qualified facility must continue to pay laborers and mechanics in compliance with all applicable local, state and federal laws.

What timing requirements apply to the payment of prevailing wages?

All laborers and mechanics performing construction, alteration or repair on a qualified facility must be paid in the time and manner consistent with the regular payroll practices of the taxpayer, contractor, or subcontractor. and in compliance with all applicable local, state and federal laws.

May deductions be taken from the prevailing wages paid to laborers and mechanics?

The payment of wages must be made without subsequent deduction or rebate on any account (except such payroll deductions as are required by law or permitted by regulations issued by the Secretary of Labor), and must consist of the full amount of wages (including bona fide fringe benefits or cash equivalents thereof) due at time of payment, computed at rates not less than those contained in the applicable wage determination of the Secretary of Labor. Further, all deductions must be made in compliance with all applicable local, state and federal laws.

How can the fringe benefit amounts listed in a wage determination be paid in order to comply with prevailing wage provisions of the Inflation Reduction Act?

The prevailing wage is the combination of the basic hourly rate and any fringe benefits listed in an applicable wage determination. Taxpayers may comply with the prevailing wage provisions by ensuring that each laborer and mechanic performing construction, alteration or repair at a facility is paid the applicable prevailing wage for the classification of work they perform entirely as cash wages or by a combination of cash wages and employer-provided bona fide fringe benefits.

The obligation to pay at least the prevailing wage listed in the applicable wage determination can be met by (1) paying each laborer and mechanic the applicable prevailing wage (including the amount of fringe benefits) entirely as cash wages or (2) providing a combination of cash wages and contributions to or incurred costs for bona fide fringe benefits.

A taxpayer and/or contractor employing laborers or mechanics performing construction, alteration, or repair work on the facility may take credit towards its prevailing wage obligations by making irrevocable contributions to a trustee or other third party for bona fide fringe benefits which are made pursuant to an insurance agreement, trust, or other funded arrangement on behalf of its laborers and mechanics. The contributions must be made periodically, at least quarterly . The third party must also assume the usual fiduciary responsibilities imposed upon them by applicable law.

A taxpayer and/or contractor may also take credit towards its prevailing wage obligations for the costs it incurs to provide bona fide fringe benefits under an unfunded plan, provided the plan has been communicated to the employees in writing , the cost reasonably anticipates the cost of providing a bona fide fringe benefit, and the plan represents an enforceable commitment to provide such benefits and is carried out under a financially responsible plan or program. To ensure unfunded plans are not used to avoid compliance with prevailing wage requirements, taxpayers and/or contractors may be required to set aside sufficient funds to ensure that the benefits will be available when the workers are eligible for the benefits. Additionally, taxpayers and/or contractors with unfunded fringe benefit plans may obtain prior approval from the Department by submitting a written request to the Department at unfunded@dol.gov , or its successor email address. If the request is approved, the taxpayer may rely on such approval as evidence that its costs of providing fringe benefits count towards satisfaction of its prevailing wage obligations. For more information on unfunded fringe benefit plans or programs, see 29 CFR § 5.28 .

Please note that a taxpayer and/or contractor cannot claim a credit for the costs of bona fide fringe benefits that the taxpayer and/or contractor is obligated to provide under other Federal, State, or local law, such as Social Security, unemployment compensation insurance, and worker's compensation insurance.

What employer-provided fringe benefits are considered "bona fide" for purposes of the Inflation Reduction Act's prevailing wage provisions?

The Davis-Bacon "prevailing wage" is the combination of the basic hourly rate of pay and any fringe benefits for the applicable classification listed in an applicable wage determination. Prevailing wages, including fringe benefits, must be paid on all hours worked on the site of the work.

Bona fide fringe benefits generally include those benefits which are common in the construction industry. Bona fide fringe benefits include, for instance:

  • Life insurance
  • Health insurance
  • Pension
  • Vacation
  • Holidays
  • Sick leave
  • Supplemental Unemployment Benefits

To be considered bona fide, fringe benefits must be provided pursuant to a plan, fund, or program that is legally enforceable and meets certain criteria, such as the requirements of the Employee Retirement Income Security Act (ERISA), laws and regulations enforced by the Internal Revenue Service (IRS), and state insurance laws. See 40 U.S.C. § 3141(2)(B); 29 CFR § 5.29(a), (d).

What steps can a taxpayer take if they discover that laborers and mechanics were not paid the applicable prevailing wage rates?

If a taxpayer initially fails to ensure that all laborers and mechanics employed by the taxpayer or any contractor or subcontractor in the construction, alteration, or repair of a qualified facility are paid applicable prevailing wage rates while they are working on the project, the taxpayer may correct such failures and come back into compliance. For more information, see IRS FAQ Penalty and Cure Provisions and Recordkeeping Q1 .

How can a taxpayer correct a failure to meet the IRA prevailing wage or apprenticeship requirements during the construction, alteration, or repair of the facility?

Even if the prevailing wage or apprenticeship requirements were not met during any period of the construction, alteration, or repair of a facility, the statute allows a taxpayer to still be eligible to get the increased credit or deduction amounts by making certain correction and penalty payments. A taxpayer will be deemed to satisfy the prevailing wage requirements if the taxpayer:

  1. pays the affected laborers or mechanics the difference between what they were paid and the amount they were required to have been paid, plus interest at the Federal short-term rate (as defined in section 6621) plus 6 percentage points, and;
  2. pays a penalty to the IRS of $5,000 for each laborer or mechanic who was not paid at the prevailing wage rate in the year. Under the proposed regulations, the penalty may not apply if the taxpayer quickly corrects certain limited errors or has a qualifying project labor agreement in place and timely corrects any failures to pay prevailing wages, as detailed in the proposed regulations. The amount a taxpayer must pay to the laborer or mechanic as well as the penalty to the IRS is increased if the failure is determined to be the result of intentional disregard.

To cure a failure to meet the apprenticeship requirements, a taxpayer must pay a penalty of $50 multiplied by the total labor hours for which the apprenticeship requirements were not met. The amount of the penalty with respect to the apprenticeship requirements is also increased to $500 per labor hour if the IRS determines the failure was due to intentional disregard.

This FAQ has been republished on this webpage for the reader's convenience and may be updated intermittently to reflect IRS guidance. For the official version of this FAQ, please see IRS FAQ Penalty and cure provisions and recordkeeping Q1 .

For all other IRS FAQs on IRA prevailing wage requirements, see Frequently asked questions about the prevailing wage and apprenticeship under the Inflation Reduction Act .

What facts and circumstances are considered when determining whether a failure to satisfy the prevailing wage requirements is due to intentional disregard?

Under the proposed regulations, the facts and circumstances that would be considered in determining whether a failure to satisfy the prevailing wage requirements is due to intentional disregard include (but are not limited to):

(A) Whether the failure was part of a pattern of conduct that includes repeated or systemic failures to ensure that the laborers and mechanics were paid wages at or above the applicable prevailing wage rate;

(B) Whether the taxpayer failed to take steps to determine the applicable classifications of laborers and mechanics;

(C) Whether the taxpayer failed to take steps to determine the applicable prevailing wage rate(s) for laborers and mechanics;

(D) Whether the taxpayer promptly cured any failures to ensure that laborers and mechanics were paid wages not less than the applicable prevailing rates;

(E) Whether the taxpayer has been required to make a penalty payment in previous years;

(F) Whether the taxpayer undertook a quarterly, or more frequent, review of wages paid to mechanics and laborers to ensure that wages not less than the applicable prevailing wage rate were paid;

(G) Whether the taxpayer included provisions in any contracts entered into with contractors that required the contractors and any subcontractors retained by the contractors to pay laborers and mechanics at or above the prevailing wage rates and maintain records to ensure the taxpayer's compliance with the recordkeeping requirements;

(H) Whether the taxpayer posted in a prominent place at the facility or otherwise provided written notice to laborers and mechanics during the construction, alteration, or repair of the facility: (i) of the applicable wage rate(s) as determined by the U.S. Department of Labor for all classifications of work to be performed for the construction, alteration, or repair of the facility, and (ii) that in order to be eligible to claim certain tax benefits, employers must ensure that laborers and mechanics are paid wages at rates not less than such wage rates; and

(I) Whether the taxpayer had in place procedures whereby laborers and mechanics could report suspected failures to pay prevailing wages and/or suspected failures to classify workers in accordance with the wage determination of workers to appropriate personnel departments or managers without retaliation or adverse action.

How can workers report suspected tax fraud?

Under existing law, employees are protected from retaliation for reporting, or causing to be reported, underpayment of taxes, potential violations of internal revenue laws, or potential violations of any provision of Federal law relating to tax fraud to their employers or to the appropriate federal government entities. For more information about this anti-retaliation protection under the Taxpayer First Act, please visit www.osha.gov/sites/default/files/publications/OSHA4047.pdf .

How should workers be paid when they work in more than one labor classification?

When workers work in more than one labor classification of work, the taxpayer, contractor, or subcontractor may, consistent with 29 CFR 5.5(a)(1)(i), pay them the different wage rates applicable to each classification, so long as they accurately keep track of the actual hours worked in each classification and pay the differing rates in accordance with that accurate record. The taxpayer, contractor, or subcontractor should not estimate the hours worked in each classification or use an average but should keep an accurate record of the time spent in each classification and pay the correct rate for the time spent in each classification.

What recordkeeping requirements apply with respect to the IRA prevailing wage and apprenticeship requirements?

Taxpayers are required to maintain and preserve sufficient records to establish compliance with the requirement that all laborers and mechanics (including those of contractors and subcontractors) were paid wages at rates not less than the applicable prevailing rates. These records include payroll records that reflect the hours worked in each classification and the actual wages and fringe benefits paid to each laborer and mechanic performing construction, alteration, or repair work on the facility. Taxpayers are also required to maintain records of any correction payments made to any laborer or mechanic.

Taxpayers are also required to maintain and preserve records to establish compliance with the apprenticeship requirements. These records include copies of any written requests for apprentices by the taxpayer (or contractor or subcontractor), any agreement entered by the taxpayer (or contractor or subcontractor) with a registered apprenticeship program, documents reflecting any registered apprenticeship program sponsored by the taxpayer (or contractor or subcontractor), documents verifying participation in a registered apprenticeship program by each apprentice, records reflecting the required ratio of apprentices to journeyworkers prescribed by each registered apprenticeship program from which qualified apprentices are employed, records reflecting the daily ratio of apprentices to journeyworkers, and the payroll records for any work performed by apprentices.

This FAQ has been republished on this webpage for the reader's convenience and may be updated intermittently to reflect IRS guidance. For the official version of this FAQ, please see IRS FAQ Penalty and cure provisions and recordkeeping Q4 .

For all other IRS FAQs on IRA prevailing wage requirements, see Frequently asked questions about the prevailing wage and apprenticeship under the Inflation Reduction Act .

Do taxpayers also have to comply with the President's Executive Order on Project Labor Agreements (Executive Order 14063) to receive enhanced tax benefits under the Inflation Reduction Act? Do taxpayers also have to comply with the President's Executive Order on Project Labor Agreements (Executive Order 14063) to receive enhanced tax benefits under the Inflation Reduction Act?

Executive Order 14063 generally would not apply to projects qualifying for enhanced Inflation Reduction Act tax benefits, as Executive Order 14063 only applies to certain federal contracts for construction. However, pre-hire project labor agreements may be used to incentivize stronger labor standards and worker protections in the types of construction projects for which taxpayers may seek the increased credit, and having a project labor agreement in place may also help ensure compliance with prevailing wage and apprenticeship requirements.

 

INFLATION REDUCTION ACT PREVAILING WAGE PROVISIONS AND THE PAYMENT OF REGISTERED APPRENTICES

When may workers be considered apprentices who may receive apprentice rates below the applicable prevailing wage rates on projects subject to the IRA prevailing wage requirements?

In accordance with 29 CFR 5.5(a)(4)(i), a worker is considered an apprentice who can be paid a rate less than the applicable prevailing wage rate if the worker is employed pursuant to and individually registered in a bona fide apprenticeship program registered by the Department of Labor's Employment Training Administration, Office of Apprenticeship, or a State Apprenticeship Agency recognized by the Department of Labor's Office of Apprenticeship, and the employer adheres to the requirements of that registered apprenticeship program.

How does a taxpayer, contractor, or subcontractor know whether a state has been authorized by DOL to approve apprenticeship programs?

A map showing which state agencies have been recognized by DOL as State Apprenticeship Agencies, along with state agency contact information, is available at https://www.apprenticeship.gov/about-us/apprenticeship-system .

How does the apprentice to journeyworker ratio in an apprenticeship agreement affect the wage rates that must be paid to an apprentice who is working on a project subject to the prevailing wage provisions of the Inflation Reduction Act?

In accordance with 29 CFR 5.5(a)(4)(i), if a taxpayer, contractor, or subcontractor wishes to pay an apprentice rate below the applicable prevailing wage rate(s) to registered apprentices, they must ensure that sufficient journeyworkers are on the site of work with the apprentices each day to ensure that the apprenticeship program ratio is met. If the apprentice to journeyworker ratio is not met for one or more apprentices that day, those apprentices must be paid the full prevailing wage rate for the classification in which they are performing work.

What wage rate should be paid to apprentices who are workingon projects subject to the prevailing wage provisions of the Inflation Reduction Act?

On projects subject to the prevailing wage provisions of the Inflation Reduction Act, the prevailing wage rate for the classification in the applicable wage determination substitutes for the journeyworker rate listed in the apprenticeship agreement, and taxpayers, contractors, and subcontractors should adjust the rate listed for each stage of apprenticeship in the apprenticeship agreement and pay apprentices accordingly, in accordance with 29 CFR 5.5(a)(4)(i).

Many apprenticeship agreements provide a specific percentage of the journeyworker rate due for each level of apprenticeship, which can then be applied to the prevailing wage rate listed for the classification in the applicable wage determination to figure out the wage rate that can be paid to apprentices at each stage of apprenticeship while they are working on the project.

Sometimes, however, the agreement only lists the rates paid to apprentices and the rate paid to journeyworkers. For apprentices enrolled in such registered apprenticeship programs, the listed apprentice rate can be divided by the journeyworker rate listed in the apprenticeship agreement to convert it to a percentage, which can then be applied to the base hourly wage rate listed in the applicable wage determination to find the applicable rate for apprentices while they are working on the project.

In addition to complying with the prevailing wage provisions of the Inflation Reduction Act, all taxpayers, contractors, and subcontractors performing construction, alteration or repair on a qualified facility must continue to pay laborers and mechanics in compliance with all applicable local, state and federal laws.

If the applicable wage determination lists a fringe benefit amount for a classification, does that fringe benefit amount apply to apprentices as well?

If the apprenticeship agreement explicitly states that a percentage applies to fringe benefits, or specifically states a lower fringe benefit amount that can be similarly applied to fringe benefit rate in the applicable wage determination, then the taxpayer, contractor, or subcontractor may apply that percentage to the fringe benefits listed in the wage determination. However, if the apprenticeship agreement is silent as to fringe benefits, the full fringe benefit amount on the applicable wage determination must be paid to the apprentice to satisfy the prevailing wage requirement.