§179D Tax deduction
Prevailing Wage & Apprenticeship Guidance
Overview
The Inflation Reduction Act of 2022 (IRA) amended and enacted various clean energy tax incentives that provide increased credit or deduction amounts if certain prevailing wage and registered apprenticeship (PWA) requirements are met. Treasury and the IRS published final regulations on June 25, 2024, providing rules and definitions for taxpayers seeking to satisfy the prevailing wage and apprenticeship requirements.
What are the prevailing wage requirements?
A prevailing wage is the combination of the basic hourly wage rate and any fringe benefits listed in an applicable wage determination, as determined by the Secretary of Labor.
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 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.
What are the apprenticeship requirements?
The apprenticeship requirements of the IRA include three components: a labor hours requirement, a ratio requirement, and a participation requirement. Under the labor hours requirement, the taxpayer must ensure that a minimum percentage of the total labor hours performed on the construction, alteration, or repair of a facility are performed by qualified apprentices from a registered apprenticeship program.
The applicable percentage is 10% for construction beginning before 2023, 12.5% for construction beginning in 2023, and 15% for construction beginning in 2024 or after. Under the ratio requirement, the taxpayer must ensure that the applicable ratio of apprentices to journey-workers established by the registered apprenticeship program are met for apprentices working on the facility each day. Under the participation requirement, any taxpayer, contractor, or subcontractor that employs 4 or more individuals at any time during the course of the construction, alteration, or repair of the facility must hire at least one qualified apprentice.
PWA Final Rule Key Points:
- The prevailing wage requirements under §179D apply only to the construction phase of the qualified residence.
- The final regulations clarify that these requirements do not extend to alterations or repairs made after the home is constructed.
- The prevailing wage requirements do not apply to any work performed before January 29, 2023. This transition rule provides a clear cutoff for when the new requirements come into effect.
- Taxpayers must maintain adequate records to demonstrate compliance with the prevailing wage requirements. This includes records of wage rates paid to laborers and mechanics during the construction of the qualified home.
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Additional Resources
- Frequently Asked Questions: Prevailing wages and apprenticeship under the IRA: Official IRS FAQ regarding prevailing wage and apprenticeship requirements
- Final IRS Regulations, June 25, 2024: Final rule on increased credit or deduction amounts for taxpayers satisfying the prevailing wage and apprenticeship requirements
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