IRS Prevailing Wage and Apprenticeship Guidance Issued for 2023-2032



Introduced in the Inflation Reduction Act (IRA) of 2022, prevailing wage and apprenticeship provisions in certain tax incentives will allow taxpayers to receive increased benefit if they abide by labor guidelines. Prevailing wage and apprenticeship requirements will come into effect for facilities that begin construction on or after January 29, 2023. These requirements are currently set to remain in effect until 2032.

prevailing wage and apprenticeship guidance

Impacted Programs

Prevailing Wage Guidance

Definition of Prevailing Wage

Prevailing wage is intended to represent the average wage a particular type of worker could expect to earn in a particular geographical location. Per the IRA, prevailing wage is the minimum wage rate that must be paid to laborers and mechanics in order for taxpayers to obtain maximum tax benefit.

The IRS defines “laborers and mechanics” as workers whose jobs are manual/physical in nature. These workers include apprentices, trainees, helpers, watchmen and guards. Foremen who perform manual labor must also be paid prevailing wage for hours spent performing said labor.

Taxpayers wishing to satisfy prevailing wage provisions must ensure that they, as well as their contractors and subcontractors, pay the applicable prevailing wage rates to all laborers and mechanics performing construction, alteration or repair duties.

Facilities for Which Prevailing Wage Applies

  • Renewable energy production facilities
  • Energy storage technologies
  • Industrial carbon capture
  • Direct air capture
  • Energy-efficient commercial buildings
  • Dwellings that meet Energy Star efficiency standards
  • Qualified nuclear power facilities
  • Alternative vehicle refueling stations
  • Qualifying advanced energy projects
  • Clean hydrogen facilities

Determining Wage Rates

The Wage and Hour Division of the U.S. Department of Labor publishes official prevailing wage rates on Taxpayers can use this database to look up applicable prevailing wage rates for their projects.

For projects taking place in more than one location, laborers and mechanics must be paid prevailing wage rates applicable to the location in which they work. For example, employees working in two different states must be paid two different prevailing wage rates, even if they are both working on the same project.

If a single employee performs more than one type of labor, they should be paid the applicable prevailing wage rate for each labor classification. Taxpayers, contractors and subcontractors are required to keep track of how many hours each employee spends performing each type of labor so that they can be paid accordingly. Estimating hours worked in each labor classification or taking an average of the various applicable prevailing wage rates is not permitted.

For additional guidance on the application of multiple prevailing wage rates, please see All Agency Memoranda 131 and 236.

Obtaining Unpublished Wage Rates

If the prevailing wage rate for a specific type of worker in a specific location is not listed on, taxpayers can request an official prevailing wage from the Wage and Hour Division by emailing [email protected]. The email request should include the:

  • Type of facility
  • Facility location
  • Proposed labor classification
  • Proposed prevailing wage rate
  • Job description and duties
  • Rationale for the proposed classification

Independent Contractors

Laborers and mechanics who act as independent contractors must also be paid applicable prevailing wage rates. Prevailing wage provisions do not make any exceptions for independent contractors

Fringe Benefits

Fringe benefits are included in prevailing wage rates. Laborers and mechanics must be paid the applicable basic hourly rates in addition to relevant employer-provided fringe benefits. Fringe benefits covered under prevailing wage provisions include:

  • Life insurance
  • Health insurance
  • Pension plans
  • Vacation pay
  • Holiday pay
  • Paid sick leave

Apprenticeship Guidance

Apprenticeship Requirements

Beginning in 2023, certain tax incentives will include additional benefits for taxpayers who abide by apprenticeship guidelines (in addition to prevailing wage requirements).

The IRA outlines two general apprenticeship requirements:

  1. Taxpayers, contractors and subcontractors must ensure that a certain number of labor hours of construction, alteration or repair work are performed by qualified apprentices (subject to applicable journeyworker ratios).
  2. Taxpayers, contractors and subcontractors who employ four or more individuals for construction, alteration or repair work must employ at least one qualified apprentice.

Registered Apprenticeship Programs

All apprentices employed under IRA labor standards must be from registered apprenticeship programs. Employers may choose to either join an existing registered apprenticeship program or register their own under the National Apprenticeship Act.

Good Faith Exception

The IRA includes a good faith exception rule for taxpayers who are unable find apprentices to hire. Under the good faith exception, certain taxpayers may be deemed as having satisfied the apprenticeship requirements so long as they put forth a good faith effort to meet them.

In order to qualify for the exception rule, one of the following criteria must be met:

  1. The taxpayer must have requested qualified apprentices from a registered apprenticeship program and had their request denied (so long as the denial was not due to the taxpayer’s failure to comply with established apprenticeship standards and requirements).
  2. The taxpayer must have requested qualified apprentices from a registered apprenticeship program and not heard back from said program within five business days of making the request.

Those planning to utilize the good faith exception rule should keep records documenting their efforts. These can include documents showing requests for apprentices and responses from apprenticeship programs.

Apprenticeship Wage Rates

In many cases, taxpayers are permitted to pay apprentices rates lower than standard prevailing wage rates. Apprenticeship programs often provide a specific percentage of the journeyworker rate that apprentices must be paid. Taxpayers, contractors and subcontractors can use this percentage to calculate the amount of the applicable prevailing wage rate that each apprentice must receive.

Apprentices can only be paid reduced rates if sufficient journeyworkers are on site to meet the apprenticeship program ratio. Apprentices must be paid the full prevailing wage rate for each day that the ratio is not met.

Recordkeeping Requirements

Taxpayers claiming tax incentives which contain prevailing wage and apprenticeship requirements must keep records to show that all requirements have been met. Such taxpayers should maintain documentation that:

  • All laborers and mechanics were paid the applicable prevailing wage rate for all hours worked
  • All laborers and mechanics received applicable fringe benefits
  • The required apprentice-to-journeyworker ratio was met each day an apprentice was on site
  • Sufficient labor hours went to qualified apprentices
  • All apprentice participation requirements were met

Beginning of Construction Guidance

Importance of Determining Beginning of Construction

Because prevailing wage and apprenticeship requirements will come into effect for construction projects starting on or after January 29, 2023, taxpayers wishing to claim relevant tax incentives must be able to accurately establish when the construction of their facilities begins. One of two methods may be used to establish when construction begins: the Physical Work Test or Five Percent Safe Harbor.

Physical Work Test

Under the Physical Work Test, a taxpayer must demonstrate when physical work “of a significant nature” begins. This test establishes that construction begins on the date that significant physical work is first performed, regardless of the cost of said work.

Preliminary activities such as planning, designing, securing financing, exploring, researching, obtaining permits, licensing, conducting surveys and/or clearing a site are not considered to be physical work of a significant nature. Physical work of a significant nature also does not include work to produce property that is either held in existing inventory or is normally held in inventory by a vendor.

The Physical Work Test applies to both on- and off-site work performed by the taxpayer, contractor, subcontractor or their employees.

Five Percent Safe Harbor

Five Percent Safe Harbor allows taxpayers to establish the beginning of construction on the date that they incur five percent or more of the total cost of the facility. If property is produced for the taxpayer by a third party, costs incurred to produce said property before it is transferred to the taxpayer still count toward Five Percent Safe Harbor.

Continuity Requirement

Whether taxpayers choose to utilize the Physical Work Test or Five Percent Safe Harbor, they must also satisfy the Continuity Requirement. This requirement stipulates that taxpayers must demonstrate continuous construction or continuous efforts following the beginning of construction.

Fast Facts

  • Prevailing wage and apprenticeship provisions will come into effect for construction projects starting on or after January 29, 2023.
  • Official prevailing wage rates are available on
  • Taxpayers may email [email protected] to request additional prevailing wage rates.
  • Certain fringe benefits are included under prevailing wage requirements.
  • Taxpayers must keep records proving that prevailing wage requirements were met.
  • Only apprentices from registered apprenticeship programs are considered qualified to meet apprenticeship requirements.
  • Apprentices can typically be paid less than standard prevailing wage rates.
  • Taxpayers must be able to prove that applicable apprentice-to-journeyworker ratios were met each day an apprentice was on site.
  • Taxpayers planning on utilizing the good faith exception rule must keep records documenting their good faith efforts.


Per IRS guidance, taxpayers should be prepared to compile substantial documentation for any project subject to tax incentives under which labor standards must be met. Claiming tax incentives such as the 179D deduction and/or 45L credit will require extensive recordkeeping. In exchange for increased documentation requirements, taxpayers will have the opportunity to claim higher tax incentives.

Engineered Tax Services has extensive experience helping taxpayers claim energy-efficient tax incentives. Our in-house community of engineers and tax experts stand ready to obtain and organize all necessary documentation for fully audit-defensible tax credits and deductions. Contact us today for further information.


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