Prevailing Wage Requirements for
§45L Tax Credits and §179D Tax Deductions

For purposes of complying with the prevailing wage provisions of the Inflation Reduction Act, the prevailing wage refers to the minimum wage rates that taxpayers must ensure are paid to laborers and mechanics performing construction of a facility, project, property, or equipment (hereafter referred to as a facility) and, in some cases, alteration or repair. A prevailing wage is the combination of the basic hourly wage rate and any fringe benefits rate, paid to workers in a specific classification of laborer or mechanic in the area where construction, alteration, or repair is performed, as determined by the Secretary of Labor in accordance with subchapter IV of chapter 31 of title 40 of the United States Code, also known as the Davis-Bacon Act.

In order to satisfy the prevailing wage provisions of the Inflation Reduction Act to qualify for enhanced tax benefits, taxpayers must ensure that they, and their contractors and subcontractors, pay applicable prevailing wage rates to laborers and mechanics, as defined at 29 CFR 5.2(m), performing construction, alternation or repair on the facility.

Laborers and mechanics include workers who perform primarily manual or physical work in trades or occupations such as electricians, ironworkers, equipment operators, truck drivers, and general laborers. Workers such as timekeepers, inspectors, architects or engineers, whose duties are primarily administrative, executive, or clerical rather than manual, are generally not considered laborers or mechanics. Persons employed in a bona fide executive, administrative, or professional capacity, as defined in part 541 of the regulations implementing the Fair Labor Standards Act, also are not deemed to be laborers or mechanics. Laborers and mechanics must be paid prevailing wages when they are performing construction, alteration, or repair of the facility on the site of the work, as defined in 29 CFR 5.2(l).

Construction, alteration, or repair means all types of work done on the facility including altering, remodeling, and installation; painting and decorating; the manufacturing or furnishing of materials, articles, supplies or equipment on the site of the work; and transportation between the taxpayer’s facility and an off-site facility dedicated to the construction of the taxpayer’s facility and deemed part of the site of the work under 29 CFR 5.2(l).

The Inflation Reduction Act and IRS Notice 2022-61, section 2.02(3), identify the circumstances under which a taxpayer must ensure that prevailing wages are paid to laborers and mechanics performing construction, alteration, or repair in order to qualify for enhanced energy tax benefits available under the Act. To qualify for the enhanced tax benefits under the Inflation Reduction Act, a taxpayer must ensure that prevailing wage rates are paid to all laborers and mechanics performing construction, alteration or repair on a facility on the site of the work.

The construction, alteration, or repair of the following types of facilities may be eligible to receive enhanced tax benefits if the applicable prevailing wage requirements are satisfied:

• Facilities that produce electricity from certain renewable resources (e.g., wind, biomass, geothermal, solar, landfill gas, trash, qualified hydropower, and marine and hydrokinetic resources);
• Energy storage technologies;
• Industrial carbon capture or direct air capture;
• Energy efficient commercial buildings (increased deduction amount);
• Dwellings that meet certain Energy Star efficiency standards;
• Certain qualified nuclear power facilities;
• Alternative vehicle refueling properties;
• Qualifying advanced energy projects (e.g., manufacturing or industrial facilities);
• Clean hydrogen facilities; and
• Clean fuel production facilities.

A taxpayer that wishes to meet the prevailing wage requirements of the Inflation Reduction Act must ensure the payment of prevailing wage rates for the applicable classifications of laborers and mechanics for the construction, alteration, or repair of the facility. These wage rates are found in wage determinations published by the Wage and Hour Division of the US Department of Labor on www.sam.gov.

A wage determination is the list of basic hourly wage rates and fringe benefit rates for each classification of laborers and mechanics in a predetermined geographic area, usually a county, for a particular type of construction. There are four types of construction for which wage determinations are published: heavy; building; residential; and highway. More information regarding the each of these four types of construction can be found in All Agency Memorandum 130. Wage determinations are published by the Wage and Hour Division of the US Department of Labor on www.sam.gov.

Yes. If construction, alteration, or repair of the facility takes place in more than one locality (i.e., if an applicable wage determination does not cover the entire geographic area in which construction of the facility will take place), then the applicable wage determination for each locality in which construction will take place will apply. In addition, if a facility that primarily involves one type of construction also requires a substantial amount of work in another category of construction, then the applicable wage determination for each category of construction will apply to the work in each category. Work in another category of construction generally is considered to be substantial if the cost of all work in that category exceeds either 20% of total project costs or $2.5 million. Additional information on the application of multiple wage determinations can be found in All Agency Memorandum 131 and 236. Any questions regarding the application of multiple wage determinations should be referred to the Wage and Hour Division.

If a taxpayer is hiring a contractor to perform the construction, alteration, or repair of a facility, the taxpayer should include the most up to date wage determination at the time it enters into the prime contract.

If the taxpayer is self-performing the construction, alteration, or repair of the facility, the most updated wage determination available at the time the work is commenced will be applicable.

If a taxpayer is constructing a solar farm facility and wishes to comply with the prevailing wage provisions of the Inflation Reduction Act, the taxpayer should identify the heavy construction wage determination for the area in which the facility is being constructed. Generally, labor classifications are based on trades or occupations and each labor classification encompasses many associated tasks, tools, and materials used by the labor classification. For example, “solar installation” is not a labor classification listed in a wage determination. The labor classifications that are typically needed to perform construction of a solar farm include but are not limited to laborers, electricians, equipment operators, ironworkers, and possibly truck drivers. A taxpayer or contractor should carefully review the applicable wage determination and direct any questions regarding the scope of a classification to WHD.

If a taxpayer is constructing a wind turbine and wishes to comply with the labor standards provisions of the Inflation Reduction Act, the taxpayer should identify the heavy construction wage determination for the area in which the facility is being constructed. Generally, labor classifications are based on trades or occupations and each labor classification encompasses many associated tasks, tools, and materials used by the labor classification. For construction of a wind turbine, the classifications that are typically needed to perform construction at the facility include but are not limited to laborers, electricians, equipment operators, carpenters, ironworkers, and possibly truck drivers. A taxpayer or contractor should carefully review the applicable wage determination and direct any questions regarding the scope of a classification to WHD.

The taxpayer and contractor or subcontractor should first compare the scope of work of the classifications listed on the applicable wage determination with the anticipated work to be performed to determine if any of the work is not performed by any classification on the applicable wage determination. If that comparison indicates that anticipated work is not performed by any classification on the wage determination, the taxpayer should request an additional classification for that work from the Wage and Hour Division by emailing [email protected]. The request should contain all relevant information, including: the type of facility, facility location, proposed labor classifications, proposed prevailing wage rates, job descriptions and duties, and any rationale for the proposed classifications.

Upon receipt of the request for an additional classification, the Wage and Hour Division will: (1) confirm that the applicable wage determination does not include a needed labor classification; (2) review the requested classification to verify that it is used in the area by the construction industry; and (3) review the proposed wage rate to verify that it bears a “reasonable relationship” to other wage rates in the wage determination, specifically those from the same category of classifications as the proposed classification. After review, the Department of Labor, Wage and Hour Division will notify the taxpayer as to the labor classifications and wage rates to be used.

Yes. The prevailing wage provisions of the Inflation Reduction Act state that to receive the enhanced tax benefits, any laborers and mechanics are to be paid applicable prevailing wage rates as determined by the Secretary of Labor in accordance with the Davis-Bacon Act. The Davis-Bacon Act does not make any exception for laborers and mechanics who are independent contractors. Additionally, 29 CFR 5.2(o) reflects that a worker’s status as a laborer or mechanic does not depend on whether the worker is an independent contractor. Accordingly, to meet the prevailing wage provisions of the Inflation Reduction Act, laborers and mechanics must be paid applicable prevailing wage rates even if they are independent contractors.

The prevailing wage is the combination of the basic hourly rate and any fringe benefits listed in an applicable wage determination. Taxpayers may comply with the prevailing wage provisions by ensuring that each laborer and mechanic performing construction, alteration or repair at a facility is paid the applicable prevailing wage for the classification of work they perform entirely as cash wages or by a combination of cash wages and employer-provided bona fide fringe benefits. Examples of bona fide fringe benefits include life insurance, health insurance, pension plans, vacation pay, holiday pay, or paid sick leave.

When workers work in more than one labor classification of work, the taxpayer, contractor, or subcontractor may, in accordance with 29 CFR 5.5(a)(1)(i), pay them the different wage rates applicable to each classification, so long as they accurately keep track of the actual hours worked in each classification and pay the differing rates in accordance with that accurate record. The taxpayer, contractor, or subcontractor should not estimate the hours worked in each classification or use an average but should keep an accurate record of the time spent in each classification and pay the correct rate for the time spent in each classification.

Section 1.6001-1(a) of the Income Tax Regulations provides that any person subject to income tax shall keep the records sufficient to establish, among other things, the amount of any credit or deduction claimed. The taxpayer would therefore need to keep records showing that all laborers and mechanics working on the site of work had been paid the applicable prevailing wage rate for all of their hours worked to meet the prevailing wage provisions of the Inflation Reduction Act. For example, the taxpayer could keep records that show the applicable wage determinations and any additional classifications and rates received from the Department of Labor; identify all laborers and mechanics who performed construction work on the facility; and reflect the correct classifications of work they performed, their hours worked in each classification, and the prevailing wage rates paid for the work, including any bona fide fringe benefit contributions or costs.

In accordance with 29 CFR 5.5(a)(4)(i), a worker is considered an apprentice who can be paid a rate less than the applicable prevailing wage rate if the worker is employed pursuant to and individually registered in a bona fide apprenticeship program registered by the Department of Labor’s Employment Training Administration, Office of Apprenticeship, or a State Apprenticeship Agency recognized by the Department of Labor’s Office of Apprenticeship, and the employer adheres to the requirements of that registered apprenticeship program.

A map showing which state agencies have been recognized by DOL as State Apprenticeship Agencies, along with state agency contact information, is available at https://www.apprenticeship.gov/about-us/apprenticeship-system.

In accordance with 29 CFR 5.5(a)(4)(i), if a taxpayer, contractor, or subcontractor wishes to pay an apprentice rate below the applicable prevailing wage rate(s) to registered apprentices, they must ensure that sufficient journey workers are on the site of work with the apprentices each day to ensure that the apprenticeship program ratio is met. If the apprentice to journey worker ratio is not met for one or more apprentices that day, those apprentices must be paid the full prevailing wage rate for the classification in which they are performing work.

On projects subject to the prevailing wage provisions of the Inflation Reduction Act, the prevailing wage rate for the classification in the applicable wage determination substitutes for the journey worker rate listed in the apprenticeship agreement, and taxpayers, contractors, and subcontractors should adjust the rate listed for each stage of apprenticeship in the apprenticeship agreement and pay apprentices accordingly, in accordance with 29 CFR 5.5(a)(4)(i)

Many apprenticeship agreements provide a specific percentage of the journey worker rate due for each level of apprenticeship, which can then be applied to the prevailing wage rate listed for the classification in the applicable wage determination to figure out the wage rate that can be paid to apprentices at each stage of apprenticeship while they are working on the project.

Sometimes, however, the agreement only lists the rates paid to apprentices and the rate paid to journey workers. For apprentices enrolled in such registered apprenticeship programs, the listed apprentice rate can be divided by the journey worker rate listed in the apprenticeship agreement to convert it to a percentage, which can then be applied to the base hourly wage rate listed in the applicable wage determination to find the applicable rate for apprentices while they are working on the project.

If the apprenticeship agreement explicitly states that a percentage applies to fringe benefits, or specifically states a lower fringe benefit amount that can be similarly applied to fringe benefit rate in the applicable wage determination, then the taxpayer, contractor, or subcontractor may apply that percentage to the fringe benefits listed in the wage determination. However, if the apprenticeship agreement is silent as to fringe benefits, the full fringe benefit amount on the applicable wage determination must be paid to the apprentice to satisfy the prevailing wage requirement.