U.S. Department of the Treasury, IRS Release Guidance on Inflation Reduction Act Provision to Ensure Good-Paying Clean Energy Jobs, Expand Clean Energy Workforce
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U.S. Department of the Treasury, IRS Release Guidance on Inflation Reduction Act Provision to Ensure Good-Paying Clean Energy Jobs, Expand Clean Energy Workforce
The U.S. Treasury Dept. released details on Aug. 29 to clarify a proposed mandate for contractors to meet prevailing wage and registered apprentice requirements on clean energy projects to earn up to five times the value of tax credits and deductions allowed under the 2022 Inflation Reduction Act.
The new guidance, which replaces initial rules in effect since Jan. 29, provides “employers and workers with more clarity and direction” on proposed IRS guardrails, boosts adoption of worker-centric practices and ensures streamlined compliance, says the agency, with approaches to meet requirements and to correct non-compliance.
Tax incentives under the law, also known as the climate act, make up three-quarters of its estimated $369-billion investments in clean energy infrastructure and related initiatives—an estimated $270 billion.
The worker regulations are set to “increase apprenticeship in the clean energy economy … and insure fair wages,” Acting Labour Secretary Julie Su said in a statement.
On a clean energy construction project, craft workers must be paid at rates not less than those deemed by the U.S. Labour Dept. as “prevailing” in a geographic location. The new proposal clarifies that prevailing wage applies to work at the project location and at any secondary worksite. It confirms that work qualifying as construction to earn additional credit includes all types of project manual labour except maintenance, administrative, executive or clerical.
The proposed rule clarifies that a prevailing wage combines the basic hourly wage rate and any fringe benefits under the federal Davis Bacon Act paid to workers in a set classification and geographic area.
What it means to the contractor?
A contractor can ask the Labour Dept. for a supplemental determination if it has no general wage provision for a specific type of job or location, the new guidance says.
If a contractor fails to meet the prevailing wage requirement during any construction, it could still gain the higher tax credit by paying workers back wages plus 6% interest, says Treasury, and a penalty of $5,000 per worker.
The latter may not apply if the contractor quickly corrects an error within 30 days of becoming aware of it, has a qualifying labour agreement in place or or before it applies for the tax credit. The amount paid to the worker and the penalty is rises if the mistake was intentional, the department proposal says.
Related to types of workers, 12.5% of total labour hours for projects started in 2023 must be performed by apprentices from a registered program, a figure rising to 15% next year. The ratio of journey-level workers to apprentices must be met each day, with at least one apprentice hired on a site that employs four or more workers. Apprentices must be paid the rate required by the participating apprenticeship program.
A contractor faces a penalty of $50 for each labour hour required for apprenticeship if the requirement is not met. It is increased to $500 per hour if the failure was intentional, the proposal says.
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