The U.S. Department of the Treasury and Internal Revenue Service on June 18 released final rules implementing the wage and apprenticeship standard provisions of clean energy tax credits created by the Inflation Reduction Act, including the 45Z clean fuels production tax credit. Taxpayers who meet the requirements can claim a credit of fivefold the base amount. 

The final rules implement key provisions of the IRA that aims to support the creation of good-paying, high-quality jobs in the clean energy economy. The rules also aim to support a robust, diverse pipeline of highly-skilled and trained workers. 

According to Treasury, IRA’s prevailing wage and registered apprenticeship (PWA) provisions are intended to increase pay for people working on IRA clean energy projects, most of which are in counties with below-average median household incomes. The PWA requirements apply to many of the IRA’s new and expanded tax credits, including the 45Z clean fuels credit. If the PWA requirements are met, the credit amount is increased fivefold. This provides a significant financial incentive for taxpayers to pay good wages and hire registered apprentices for construction, alteration and repair work on the clean energy projects by enhancing the value of the credit, the agency said. 

Information published by the U.S. Department of Energy indicates that the base level of the 45Z clean fuel production tax credit is 35 cents per gallon for sustainable aviation fuel (SAF) and 20 cents per gallon for non-aviation fuels. For facilities that satisfy the PWA requirements, the credit amount is $1.75 per gallon for SAF and $1 per gallon for non-aviation fuels. 

Treasury and the IRS are encouraging developers to consider project labor agreements (PLAs) to help them comply with the PWA requirements. PLAs are a type of pre-hire collective bargaining agreement. According to the agencies, the final rules include special provisions for taxpayers that elect to use PLAs. Treasury also noted that the final rules provide that taxpayers with qualifying PLAs in place will not have to pay penalties if the IRS finds that they have any PWA violations, as long as they promptly pay workers the back wages and interest that those workers are owed. Additionally, the IRS will take into account whether a taxpayer has a qualifying PLA, and evidence of whether a qualifying PLA was complied with, when conducting audits. 

In general, the prevailing wage requirement provisions of the final rules require that any labors and mechanics employed by the taxpayer or any contractor or subcontractor in the construction, alteration or repair of the facility be paid wages not less than the prevailing rates for construction, alteration, or repair of a similar character in the locality in which the facility is located as most recently determined by the U.S. Department of Labor in accordance with certain regulations established by the Davis-Bacon Act, which sets requirements for paying local prevailing wages on public works projects. 

The apprenticeship requirements of the final rules, in general, impose requirements regarding labor hours, apprentice-to-journeyworker ratios, and participation by qualified apprentices. According to the final rules, qualified apprentices must perform between 10% and 15% percent of total labor hours for construction, alteration, or repair work, depending on the date when construction begins. Qualified apprentices are defined as an individual who is employed by the taxpayer or by any contractor or subcontractor who is participating in a registered apprenticeship program. Each taxpayer, contractor or subcontractor who employs four or more individuals to perform construction, alteration or repair work on a qualified facility must employ one or more qualified apprentices to perform such work. The rules also provide for certain exemptions to apprenticeship requirements. 

The final rules also include special provisions for the 45Z clean fuels production tax credit that apply to facilities placed into service before Jan. 1, 2025, and/or facilities that begin construction prior to Jan. 29, 2023.  In general, facilities placed into service prior to Jan. 1, 2025, are not subject to the prevailing wage requirements with respect to the construction for the facility but are subject to the prevailing wage requirements for the alteration or repair of the facility with respect to any taxable year beginning after Dec. 31, 2024, for which the 45Z credit is allowed. Within the guidance, Treasury also confirms that “taxpayers can satisfy the requirements for the increased credit amount regardless of whether construction began before or after January 29, 2023.”

Additional information, including a full copy of the final rules, is available on the Treasury website.