The Inflation Reduction Act (IRA) introduced significant changes to the landscape of tax credits, one of the most complicated being the addition of the prevailing wage and apprenticeship (PWA) requirements for enhanced tax credits. These requirements are designed to bolster the clean energy industry while enhancing job creation and wage growth in the United States, but they also bring a host of compliance challenges for taxpayers.

Over the past year, while the clean energy industry has coalesced around some standards for PWA compliance, there continues to be a steep learning curve, especially for developers new to government-style labor compliance. 

Here’s an overview of what you need to know to better navigate these changes effectively, and what lessons from this past year can help guide taxpayers on a smoother path forward.

Understanding the rules

The PWA rules were introduced to clean energy in the IRA and apply differently depending on the specific tax credits. While these rules generally apply to most clean energy credits, there are exceptions. Some credits have only prevailing wage rules, some have both prevailing wage and apprenticeship requirements, and a few have neither. It’s crucial to understand the specific requirements for each credit you are dealing with. 

Currently, there are nine tax credits, along with the Section 179D energy-efficient commercial building deduction, that are subject to some form of prevailing wage and apprenticeship requirements. Certain projects that generate less than one megawatt or began construction (as technically defined) prior to Jan. 29, 2023, are excused from compliance with PWA in order to qualify for enhanced credits or deductions. This is a material consideration: The enhanced credit is worth five times what the base credit would be. Compliance must align with either proposed or final regulations (together spanning over 400 pages), as well as IRS Notice 2022-61 and guidance embedded in other tax guidance such as regulations pertaining to Internal Revenue Code Sections 30C, 48, and 45Y. This regulatory web makes it essential for developers, advisors, and EPCs to stay aligned and understand all of the current rules.

Third-party considerations

Financial counterparties — including tax insurers, tax equity investors, and lenders — are now paying heightened attention to PWA compliance. Developers are sometimes surprised by the level of scrutiny these groups apply. Thorough due diligence is being conducted both before and after financial close, particularly in scenarios where Class B interests are sold down or, in other words, when cash flows are monetized.

This is not a one-time check; For example, in ITC deals, PWA compliance documentation is likely to be revisited during the recapture period as it relates to labor associated with alterations to, and repairs of, the facilities.

The importance of record-keeping

Comprehensive record-keeping is essential in most cases for demonstrating compliance with these rules. Taxpayers must maintain records for as long as necessary to prove compliance if audited by the IRS. This means that even beyond the recapture period, maintaining detailed and organized records is vital.

In many cases, recordkeeping decisions made at the start of a project will directly impact the outcome of an audit years later. Developers must determine which version of regulations they are following — proposed or final — since the required level of detail differs. For example, final regulations permit use of the last four digits of a Social Security number or a taxpayer identification number, while proposed rules imply full SSNs may be necessary. Beyond worker names, phone numbers and email addresses are critical to ensure that future underpayments can be tracked and corrected with the laborer. Parties should think long-term: Who is responsible for holding and maintaining the records — the developer, contractor, or a third party? If a contractor dissolves or cannot be reached later, failure to secure these records for an IRS audit can jeopardize the credit. 

Compliance responsibility

The responsibility for compliance ultimately falls on the taxpayer claiming the credits, even if there are contractual agreements with third parties to maintain compliance. It’s important to ensure that all parties involved in the project understand and comply with the PWA requirements. 

Taxpayers need to “set the stage” through contracts from day one. That includes clear language identifying which rules apply, audit rights, and flow-down provisions that hold subcontractors accountable. If your contract doesn’t require all tiers to follow PWA regulations — or grant third-party audit rights — you’re already behind. Involving legal and compliance teams early helps identify risks, assign responsibilities, and define expectations for EPCs and subcontractors. Subcontractor monitoring, a staple in public-sector contracts, should now be adapted to renewable energy projects. The more clarity and detail embedded in contracts early on, the smoother compliance will be downstream.

Business implications

Proper record keeping and compliance are not only important for IRS audits but also for business transactions such as project sales, financing, and insurance. The quality of records can significantly impact the outcome of audits and business dealings. Non-compliance can lead to severe and costly consequences if failures are discovered later.

Financially interested parties are digging deep, sometimes months or years after project completion, to evaluate PWA compliance. With tens of millions of dollars in tax credits at stake, developers must expect intense scrutiny of certified payrolls, classifications, and apprenticeship hours. Missteps are expensive; Underpayment corrections may require backpay plus interest (which today is around 10%),  plus penalty payments to the IRS of $5,000 per employee, and if it has been determined that there was intentional disregard of these rules, the penalties could be higher.

Industry adjustment

The renewable energy industry is currently adjusting to these requirements, which involve a learning curve and additional administrative burden. The IRA aims to improve job creation and wages in the U.S.; the result is that compliance with these rules requires a substantial effort for taxpayers. 

Many developers entering renewables from other industries are encountering prevailing wage and apprenticeship rules for the first time, and there is often confusion over wage determinations, classifications, and navigating the Department of Labor’s conformance process (e.g., submitting SF 1444 forms when needed).

However, it is the apprenticeship requirements that have emerged as the steepest challenge. Many contractors are unfamiliar with these programs and must now seek registered apprentices, often for the first time. 

In non-union states or areas with weak apprenticeship infrastructure, meeting journey worker-to-apprentice ratios and labor-hour minimums (10%, 12.5%, or 15%) can be particularly difficult. Developers have found that education is everything — EPCs, subcontractors, and vendors must all understand what’s at stake. Rules written with traditional construction in mind don’t always map neatly to renewables, and interpretation gaps remain.

Early compliance

Addressing compliance from the very beginning, including during contract negotiations with EPCs, is crucial to ensure all requirements are met. Owners and developers need to thoroughly understand what is required for their projects to secure the maximum amount of tax credits.

Projects move fast — false starts, liquidated damages, and construction milestones add pressure. That urgency often clashes with the time required to set up robust PWA processes.

This means developers must act early — before contracts are signed and boots are on the ground — to determine recordkeeping strategies, subcontractor responsibilities, and compliance systems.

You cannot assume contractors “know the rules”— many don’t. 

Success hinges on detailed planning, systemized tracking, and continual communication to make sure that wage and apprentice requirements are met throughout the project.

Support and guidance

Having a knowledgeable team can help make the compliance process smoother and less burdensome. Proper compliance and monitoring can alleviate the administrative burden associated with these requirements.

Navigating the PWA rules under the IRA requires a thorough understanding of the specific requirements, diligent record keeping, and proactive compliance efforts. By addressing these challenges early and seeking expert guidance, taxpayers can better ensure they meet the necessary standards and maximize their tax credit benefits.

Working with third-party compliance monitors, independent reviewers, or legal consultants early in the process is no longer optional — it’s critical. The IRS may not have issued detailed enforcement guidance yet, but developers must demonstrate best efforts and good faith to avoid penalties.

If you chase your subs, maintain solid documentation, and show that you did everything you could, you’ll be in a better position to defend your credits.

One year in, the biggest takeaway is this: PWA compliance is a culture shift — one that must be built into every project from day one.

For a deeper dive, watch our webinar: “PWA: Reflecting on a year of lessons”