Paying Prevailing Wages Means Clean Energy Tax Credits for Many
Published on by Lauren Huster in Tax Services
Companies paying prevailing wages in the clean energy sector may now be able to claim tax credits, according to new Treasury and IRS regulations. In a push to stimulate growth in the clean energy sector, the U.S. Department of the Treasury and the IRS released the new regulations under the Inflation Reduction Act. Companies paying prevailing wages to laborers and mechanics and hiring registered apprentices for projects supported by the Act’s clean energy tax incentives are eligible for the credit.
The Inflation Reduction Act, signed into law in 2022, has already significantly impacted the clean energy industry, stimulating over $410 billion in clean energy investments across the United States.
Up to five times the base incentive
The recently released rules provide clarity and certainty to developers and the workers they employ for clean energy jobs. Employers who comply can claim a tax credit equal to five times the base incentive, which applies to projects claiming the investment and production tax credits for financing utility-scale wind, solar, and battery storage projects, along with tax credits for clean hydrogen and carbon capture, utilization, and storage projects.
As part of this effort, the IRS is dedicating significant resources to promoting and enforcing compliance with the final clean energy rules. They hold taxpayers claiming clean energy credits accountable for meeting all prevailing wage and apprenticeship requirements.
Exceptions to the new rules
There are certain exceptions. For instance, facilities that produce clean energy under one megawatt or those that began construction before January 29, 2023, may be eligible to claim the increase without fully meeting the requirements.
The IRS and the Department of Labor are working on a Memorandum of Understanding (MOU) to support the IRS’s efforts in ensuring compliance with the prevailing wage and apprenticeship regulations. The MOU, set to be signed by the end of the year, will facilitate joint education, public outreach, and training for IRS examination personnel.
The final rules also encourage the use of project labor agreements, which can aid taxpayers in complying with the prevailing wage and apprenticeship requirements. These agreements are designed to keep projects safe, on time, and on budget—often under budget—with union contracts and highly skilled workers.
Credits impacted by requirements
- Alternative Fuel Refueling Property Credit
- Renewable Electricity Production Credit
- Clean Electricity Production Credit
- Credit for Carbon Oxide Sequestration
- Credit for Production of Clean Hydrogen
- Clean Fuel Production Credit
- Energy Credit
- Clean Electricity Investment Credit
- Qualifying Advanced Energy Project Credit
- Energy-Efficient Commercial Buildings Deduction
Only the prevailing wage requirement applies to:
- New Energy Efficient Home Credit
- Zero-Emission Nuclear Power Production Credit
The impact
The prevailing wage and apprenticeship requirements and the associated tax benefits represent a significant step towards putting American workers at the center of the clean energy economy. It’s not just about building more clean energy but doing it in a way that boosts the economy.
As the clean energy sector continues to grow, these regulations will play a crucial role in shaping its future by incentivizing high-paying jobs and offering attractive tax credits designed to drive the economy forward.
If you need advice on how these rules affect your company, connect with us today. Our tax compliance pros are here to help, as always.