The Inflation Reduction Act (IRA) was signed into law this August, with new guidance issued on November 30th regarding the prevailing wage and apprenticeship requirements within the legislation. The IRA is set to have a significant impact on the construction industry by incentivizing green building materials and energy efficiency. This includes $369 billion for clean energy initiatives, with nearly $270 billion of that earmarked for direct tax incentives. Some of these programs are new, but the IRA also expanded and extended existing incentives and implemented new rules for those that want to participate.

Contractors hoping to cash in on some of these tax credits will need to satisfy specific prevailing wage and apprenticeship requirements.

Inflation Reduction Act (IRA) prevailing wage and apprenticeship guidelines

The Production Tax Credit (PTC)(Section 45) and Investment Tax Credit (ITC)(Section 48) are existing credits that are extended by the IRA. Companies must follow either prevailing wage requirements or prevailing wage and apprenticeship requirements to qualify. The following chart shows which credit falls under each set of requirements.

Inflation Reduction Act Credit Requirements

Must meet prevailing wage &
apprenticeship requirements 

Must meet prevailing wage requirements

Alternative Fuel Refueling Property Credit  New Energy Efficient Home Credit
Production Tax Credit Zero-Emission Nuclear Power Production Credit
Credit for Carbon Oxide Sequestration 
Credit for Production of Clean Hydrogen 
Clean Fuel Production Credit
Investment Tax Credit 
Advanced Energy Project Credit 
Energy Efficient Commercial Buildings Deduction 


The guidance recently issued by the IRS under Notice 2022-61 leaves a few blind spots, but here is what we know about qualifying for tax credits:

  • Laborers and mechanics must be paid prevailing wages, including fringe benefits, for all hours worked related to construction, alteration or repair on qualified projects.
  • For credits that fall under prevailing wage and apprenticeship requirements, a sufficient number of workers must be from a registered apprenticeship program. The new guidance defines “sufficient” by saying that 12.5 % of labor hours on each qualified job must come from apprentices. So if you have a 6000-hour job, 750 hours should be performed by apprentices.
  • Apprentices must come from an official program that is recognized by the DOL. You can find a map and contact information by state here.
  • Apprentices may be paid a lower rate as listed on the wage determination but only if the apprentice to journeyworker ratio is met. Ratios vary and are set by the DOL’s Office of Apprenticeship or by a State Apprenticeship Agency (SAA). If the ratio is not met, apprentices must be paid the full prevailing wage rate.
  • Companies are responsible for looking up prevailing wage rates through Sam.Gov. If no wage information exists for the geographic location, type of construction or labor classification needed, you must request the information from the Department of Labor, Wage and Hour Division. You can do this by sending details of the project and work (type of facility, location, proposed labor classification, job description and duties) to
  • To participate in the credits, companies must have documentation showing compliance. While we know this includes the general recordkeeping provisions of IRS rules § 6001 and § 1.6001-1, it is less specific in terms of documenting prevailing wage and apprenticeship compliance. At the moment, we can assume that companies must follow recording keeping and reporting requirements from Davis-Bacon and Related Acts. 
  • There is a required prevailing wage period to qualify for credits that extends past the construction phase to include the alteration and repair of the facility. For the ITC, prevailing wages must be paid for alteration and repair work for five years after the project is placed in service. For the PTC, prevailing wages must be paid for alteration and repair work for ten years after the project is placed in service.

When does the Inflation Reduction Act go into effect?

The credits apply to construction projects that begin on or after January 29, 2023. It’s important to understand that to qualify for credits under IRA, there are two ways to calculate a project’s start date.

A project is considered to be started if it fits into either of the following categories:  

1. If physical work of a significant nature has started (Physical Work test);

2. 5% of the total cost has been paid or incurred (Five Percent Safe Harbor test)

The Physical Work test applies to on-site and off-site work done by the construction company itself or by someone contracted to perform work relating to the project. Preliminary activities are not included as physical work for this test, so planning, designing, getting permits, doing surveys and related work does not count. 

The Five Percent Safe Harbor test takes into account costs included in the depreciable basis for the property. It can also include costs incurred by a contracted person before the property is handed over as long as the costs are incurred under the principles of § 461. This refers to the General Rule for Taxable Year of Deduction which says the deduction or credit must be taken for the same taxable year, with the same accounting methods, used to calculate taxable income. 

Under both tests, you must show that you are making continuous efforts to advance the project. There is little specific guidance offered in terms of what “continuous effort” means other than saying that the continuity requirement would be satisfied if the facility is in service between 4 and 6 calendar years after the calendar year construction begins, depending on several factors. Some offshore projects or projects built on federal land may have up to 10 years. 

Although there is some ambiguity in what it takes to satisfy the continuous effort requirement, the IRS is clear when it comes to its intent to enforce it, stating: 

“ Whether a taxpayer meets the Continuity Requirement under either test is determined by the relevant facts and circumstances. The IRS will closely scrutinize a facility and may determine that the beginning of construction is not satisfied with respect to a facility if a taxpayer does not meet the Continuity Requirement.”

Takeaway regarding credits and the Inflation Reduction Act

The Inflation Reduction Act is a complicated piece of legislation and its impact extends past offering credits to encourage green building and energy efficiency. In addition to new regulations created by the IRA, there are some significant changes to the Internal Revenue Code that impact existing regulations. For example, the legislation made changes to the Alternative Minimum Tax and modified standards for claiming the Clean Vehicle Credit. 

Construction companies looking to take advantage of IRA credits must fully understand the requirements involved. This includes paying prevailing wages and fringe benefits, utilizing apprentices when applicable, elevated record keeping to document compliance and having a start date that is on or after January 29, 2023. 

You should compare prevailing wage rates against potential credits to determine which credits may be of value. It is also important to talk with a trusted tax professional going into 2023 to fully understand how the IRA can impact your business. 

The material presented here is educational in nature and is not intended to be, nor should be relied upon, as legal or financial advice. Please consult with an attorney or financial professional for advice.