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Guidance starts 60-day “clock” for key labor provisions to take effect

WASHINGTON – Today, the Treasury Department announced initial guidance on the Inflation Reduction Act’s strong labor standards that firms must meet to qualify for enhanced clean energy and climate tax incentives. The guidance, which can be read in full here and will be published in the Federal Register tomorrow, is an important first step toward making sure the Inflation Reduction Act supports good-paying jobs in the clean energy industry, expands workforce training pathways into these jobs, and lowers costs for American families.

“The historic Inflation Reduction Act that President Biden signed into law earlier this year puts in place tax incentives across the energy sector that will drive renewable energy investment and economic growth while ensuring the jobs created from this investment and growth are good-paying ones, with strong labor protections,” U.S. Secretary of the Treasury Janet L. Yellen said. “Workers should benefit from the clean energy economy they’re helping build. The guidance announced today provides firms greater clarity on how to meet the labor standards embedded in the bill to maximize the available tax credits.”

The Inflation Reduction Act is the single most significant legislation to combat climate change in our nation’s history, investing a total of $369 billion to help build a clean energy economy. Nearly three-quarters of that climate change investment – an estimated $270 billion – is delivered through tax incentives, putting Treasury at the forefront of this landmark legislation.

To maximize many of the available clean energy and climate tax incentives, firms need to pay workers a “prevailing wage” and employ a certain number of apprentices from registered apprenticeship programs. In the guidance announced today, the Treasury Department provided greater clarity for these provisions.

Both the prevailing wage and apprenticeship requirements apply to the following tax incentives:

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

The prevailing wage requirements also apply to the following tax incentives:

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

Under the law, these prevailing wage and apprenticeship requirements apply to qualifying facilities, projects, property, or equipment for which construction begins 60 days or more after Treasury publishes guidance. The guidance that will be published in the Federal Register tomorrow begins that 60-day “clock,” meaning that these requirements will apply to qualifying facilities, projects, property, or equipment for which construction begins on or after January 29, 2023.

To further assist taxpayers and other stakeholders in understanding these provisions, the Department of Labor today issued two Frequently Asked Question (FAQ) documents – one on prevailing wage and the other one on apprenticeships.

The Treasury Department plans to issue additional proposed regulations with respect to these requirements in the coming months.
 

WHAT’S IN THE GUIDANCE ANNOUNCED TODAY

Prevailing Wage Guidance

In the guidance announced today, the Treasury Department describes the process for identifying the applicable wage determination for a specific geographic area and job classification on the Department of Labor’s sam.gov website. If no prevailing wage determination is posted for a specific geographic area and/or job classification, Treasury specifies that taxpayers should contact the DOL’s Wage and Hour Division directly via email, and the Division would provide the taxpayer with the labor classifications and wage rates to use.

Apprenticeship Guidance

The guidance provides greater specificity regarding the apprenticeship labor hour, ratio, and participation requirements.  The guidance also describes the good faith effort exception in which a taxpayer makes a good faith effort in requesting qualified apprentices from registered apprenticeship programs.

Recordkeeping Requirements

The guidance also specifies the recordkeeping requirements taxpayers must comply with to substantiate that they paid workers a prevailing wage and satisfied the apprenticeship requirements.

Beginning of Construction Guidance

To provide guidance regarding when the prevailing wage and apprenticeship requirements apply, and provide certainty for taxpayers that are currently constructing clean energy projects, Treasury affirmed the use of longstanding methods for establishing the date of beginning of construction:

• By starting physical work of a significant nature (physical work test)
• By having paid or incurred five percent or more of the total cost of the facility (five percent safe harbor)

For both tests, taxpayers must demonstrate either continuous construction or continuous efforts (continuity requirement) for beginning of construction to be satisfied.

Background on Treasury’s work to implement the Inflation Reduction Act:

Since the Inflation Reduction Act was signed into law in August, the Treasury Department has engaged a broad spectrum of labor unions, industry representatives, and other stakeholders to help inform today’s initial guidance. It has reviewed thousands of public comments and hosted a series of roundtable discussions with key stakeholder groups representing millions of workers, thousands of companies, and trillions of dollars in investment assets, as well as climate and environmental justice advocates, community-based organizations, and other key actors that are critical to the success of the IRA.

For more information on Treasury’s stakeholder engagement around the Inflation Reduction Act climate and clean energy provisions, please see: 

August 16, 2022: Treasury Releases Initial Information on Electric Vehicle Tax Credit Under Newly Enacted Inflation Reduction Act

October 5, 2022: Treasury Seeks Public Input on Implementing the Inflation Reduction Act’s Clean Energy Tax Incentives

FACT SHEET: Treasury, IRS Open Public Comment on Implementing the Inflation Reduction Act’s Clean Energy Tax Incentives

October 26, 2022: READOUT: Stakeholder Roundtable on Clean Power Generation and the Inflation Reduction Act

October 27, 2022: READOUT: Stakeholder Roundtable on Climate Impact, Equity, and the Inflation Reduction Act

FACT SHEET: Four ways the Inflation Reduction Act’s Tax Incentives Will Support Building an Equitable Clean Energy Economy

October 31, 2022: READOUT: Stakeholder Roundtable on Investor Perspectives on Climate Change, Clean Energy, and the Inflation Reduction Act

November 3, 2022: Treasury Seeks Public Input on Additional Clean Energy Tax Provisions of the Inflation Reduction Act

November 4, 2022: READOUT: Stakeholder Roundtable on Clean Vehicles and the Inflation Reduction Act

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