Sec. 1.45-7 Prevailing wage requirements.

(A) Manner of making request. A taxpayer, contractor, or subcontractor requesting a supplemental wage determination or additional classification and wage rate under paragraph (b)(3)(i) of this section must submit the request to the U.S. Department of Labor at, U.S. Department of Labor, Wage and Hour Division, Branch of Construction Wage Determinations, Washington, D.C. 20210, by email at IRAprevailingwage@dol.gov, or such other address as may be prescribed in guidance and instructions issued by the Administrator of the Wage and Hour Division of the U.S. Department of Labor (Wage and Hour Division).

(B) Timing of supplemental wage determination requests. A taxpayer, contractor, or subcontractor should make requests for a supplemental wage determination no more than 90 days before the taxpayer (or the taxpayer’s designee, assignee, or agent) expects to execute the contract for the construction, alteration, or repair of the facility with a contractor. In the absence of a contract, the taxpayer, contractor, or subcontractor should make such requests no more than 90 days before construction, alteration, or repair of the facility starts.

(C) Timing of requests for prevailing wage rates for additional classifications. A request for prevailing wage rates for additional classifications can be made any time after a contract for the construction, alteration, or repair of a facility has been executed between the taxpayer (or the taxpayer’s designee, assignee, or agent) and a contractor. In the absence of a contract, the taxpayer, contractor, or subcontractor should make such requests no more than 90 days before construction, alteration, or repair of the facility starts. If the taxpayer, contractor, or subcontractor cannot reasonably determine prior to execution of the contract between the taxpayer (or the taxpayer’s designee, assignee, or agent) and the contractor or prior to the start of the construction, alteration, or repair work that an additional classification and wage rate is necessary, the taxpayer, contractor, or subcontractor should make such request as soon as practicable after determining that an additional classification and wage rate is necessary.

(D) Required information. The request for a supplemental wage determination or additional classification and wage rate must include the following information:

(A) The difference between the amount of wages paid to such laborer or mechanic for all hours worked during such period and the amount of wages required to be paid to such laborer or mechanic pursuant to paragraph (a) of this section for all hours worked during such period; and

(B) Interest on the amount determined under paragraph (c)(1)(i)(A) of this section at the Federal short-term rate as determined under section 6621 but substituting “6 percentage points” for “3 percentage points” in section 6621(a)(2).

(A) Example 1. Taxpayer A starts construction of a qualified facility on February 3, 2023. The facility is placed in service on October 10, 2023, and Taxpayer A claims the increased credit amount under section 45(b)(6)(B)(iii) on its 2023 tax return. Laborer X was employed in the construction, alteration, or repair of the facility in calendar year 2023 for 20 weeks and was paid on a weekly basis. Laborer X was paid wages below the prevailing wage rate for all pay periods in calendar year 2023. All other laborers and mechanics were paid wages at the prevailing wage rate. The aggregate difference between the amount of wages Laborer X was paid and the amount required to be paid under paragraph (a) of this section is $400 (that is, Laborer X worked 20 weeks during the year and was underpaid by $20 in each of those weeks). The amount of the correction payment Taxpayer A must make to Laborer X is equal to $400 plus interest from the date of each underpayment at the rate as determined under section 6621 but substituting “6 percentage points” for “3 percentage points” in section 6621(a)(2). The total number of laborers underpaid for any period in 2023 was one, so the total amount of the penalty payment that Taxpayer A must pay to the IRS to retain the increased credit amount is $5,000.

(B) Example 2. Taxpayer B starts construction of a qualified facility on January 30, 2023. The facility is placed in service on February 2, 2024. Taxpayer B claims the increased credit amount under section 45(b)(6)(B)(iii) on its 2024 tax return. Taxpayer B paid workers on a biweekly basis. Five laborers employed in the construction of the facility were paid wages at rates below the prevailing wage rates in 2023, with the difference between the amount they were paid and the amount of wages required to be paid under paragraph (a) of this section being $500 per laborer. One of those laborers remained employed in the construction of the facility in 2024 and was paid wages below the prevailing wage rate in 2024, with the difference between the amount the laborer was paid and the amount of wages required to be paid under paragraph (a) of this section being $100. All other laborers and mechanics involved in the construction, alteration, or repair of the facility were paid wages at the prevailing wage rates. Taxpayer B must make correction payments of $500 plus interest from the date of each underpayment at the rate as determined under section 6621 but substituting “6 percentage points” for “3 percentage points” in section 6621(a)(2) to each of the five laborers that were underpaid in 2023, and a correction payment of $100 plus interest from the date of each underpayment at the rate as determined under section 6621 but substituting “6 percentage points” for “3 percentage points” in section 6621(a)(2) to the laborer that was underpaid in 2024. The total amount of the penalty payment that Taxpayer B must pay to the IRS to retain the increased credit amount is $30,000, which includes $5,000 for each laborer underpaid in 2023 and $5,000 for the laborer underpaid in 2024.

(C) Example 3. Taxpayer C starts construction of a qualified facility on January 30, 2023. The facility is placed in service on February 2, 2024. Taxpayer C claims the increased credit amount under section 45(b)(6)(B)(iii) on its 2024 tax return. Taxpayer C paid workers on a biweekly basis. Laborer Y was employed in the construction of the facility for 22 weeks in 2023 and was paid wages at rates below the prevailing wage rates for the first 20 weeks of her employment in the amount of $500 (that is, Laborer Y was underpaid $50 in each of the 10 biweekly periods). For the last biweekly pay period, Taxpayer C paid Laborer Y the correct prevailing rate for the work performed during the period, plus $500 for the amounts that were underpaid in the first 10 periods. All other laborers and mechanics involved in the construction, alteration, or repair of the facility were paid at the prevailing wage rates. Taxpayer C is required to make a correction payment to Laborer Y in the amount of the interest from the date of each underpayment at the rate as determined under section 6221 but substituting “6 percentage points” for “3 percentage points” in section 6221(a)(2) to the laborer that was underpaid in 2023. To retain the increased credit amount, Taxpayer C must make a penalty payment of $5,000 to the IRS with respect to Laborer Y.

(A) The correction payment under paragraph (c)(1)(i) of this section is increased to three times the sum determined in paragraph (c)(1)(i) of this section; and

(B) The penalty payment under paragraph (c)(1)(ii) of this section is increased to $10,000 multiplied by the total number of laborers and mechanics who were paid wages at a rate below the rate described in paragraph (b) of this section for any period during such year.

(A) Whether the failure was part of a pattern of conduct that includes repeated or systemic failures to ensure that the laborers and mechanics were paid wages at rates not less than the applicable prevailing wage rate, including failures to pay prevailing wages as required under other applicable laws;

(B) Whether the taxpayer took steps to determine or review the applicable classifications of laborers and mechanics, such as through a quarterly, or more frequent, review of the applicable classifications of laborers and mechanics according to the actual duties performed by those laborers and mechanics;

(C) Whether the taxpayer took steps to determine or review the applicable prevailing wage rate(s) for laborers and mechanics to ensure usage of correct rates by all contractors and subcontractors, such as through a quarterly, or more frequent, review of the prevailing wage rates;

(D) Whether the taxpayer promptly cured any failures to ensure that laborers and mechanics were paid wages at rates not less than the applicable prevailing rates;

(E) Whether the taxpayer has been required to make a penalty payment under paragraph (c)(1)(ii) of this section in previous years;

(F) Whether the taxpayer undertook (or engaged an independent third party to aid in conducting) a quarterly, or more frequent, review of wages paid to mechanics and laborers to ensure that wages at rates not less than the applicable prevailing wage rates were paid (including by reviewing payroll information of contractors and subcontractors or by requiring contractors and subcontractors to regularly provide payroll information to the taxpayer or a third party acting on behalf of the taxpayer);

(G) Whether the taxpayer included provisions in any contracts entered into with contractors that required the contractors and any subcontractors retained by the contractors to pay laborers and mechanics wages at rates not less than the prevailing wage rates and maintain records to ensure the taxpayer’s compliance with recordkeeping requirements set forth in §1.45-12;

(H) Whether the taxpayer posted in a prominent place at the qualified facility or otherwise provided written notice to laborers and mechanics during the construction, alteration, or repair of the qualified facility, the applicable wage rate(s) as determined by the U.S. Department of Labor for all classifications of work to be performed for the construction, alteration, or repair of the facility, that in order to be eligible to claim certain tax benefits, employers must ensure that laborers and mechanics are paid wages at rates not less than such wage rates, and instructions on how laborers and mechanics may contact the taxpayers’ personnel departments or taxpayers’ managers to report suspected failures to pay prevailing wages and/or suspected failures to classify workers in accordance with applicable wage determinations, employment tax violations, or violations of workplace standard laws without retaliation or adverse action;

(I) Whether laborers and mechanics were given the opportunity to acknowledge notice provided by the taxpayer, contractor, or subcontractor that in order to be eligible to claim certain tax benefits, taxpayers must ensure that laborers and mechanics employed by the taxpayer, contractor, or subcontractor in the construction of a qualified facility are paid wages at rates not less than prevailing wage rates;

(J) Whether the taxpayer had in place procedures whereby laborers and mechanics could report suspected failures to pay prevailing wages and/or suspected failures to classify workers in accordance with the wage determination of workers, employment tax violations, or violations of workplace standard laws to appropriate personnel departments or managers without retaliation or adverse action, and whether the taxpayer investigated such reports by laborers and mechanics and had internal controls to prevent failures to pay prevailing wages and classify workers in accordance with the wage determination of workers, employment tax violations, and violations of workplace standard laws;

(K) Whether all laborers and mechanics were provided with a written notice of the rights conferred by the whistleblower provisions of the Taxpayer First Act in section 7623(d);

(L) Whether all laborers and mechanics were provided with paystubs (or access to individual payroll records) reflecting the amount they were paid per pay period (including the specific hourly rate and all deductions from wages);

(M) Whether the taxpayer investigated any complaints of retaliation or adverse action resulting from, reports of suspected failures to pay prevailing wages and/or classify workers in accordance with applicable wage determinations, employment tax violations, or violations of workplace standard laws and took appropriate actions to remedy any retaliation or adverse action and prevent it from reoccurring;

(N) Whether the taxpayer, contractor, or subcontractor contracted with contractors who, at the time the work was performed, was known by the taxpayer, contractor, or subcontractor to be debarred by a municipality, State, or the U.S. Department of Labor for violations related to the underpayment of local, State, or Federal prevailing wages; and

(O) Whether the taxpayer failed to maintain and preserve records in accordance with §1.45-12 sufficient to establish compliance with the prevailing wage requirements for relevant tax years.

(A) Example 1. Taxpayer D failed to satisfy the Prevailing Wage Requirements with respect to the construction of a qualified facility. Taxpayer D did not include contract language that requires the payment of prevailing wages in the contract executed with the contractor nor did it require similar contract provisions in any subcontracts. Taxpayer D did not post in a prominent place at the qualified facility or otherwise notify any laborers or mechanics that in order to claim certain tax benefits (the increased credit amount described in section 45(b)(6)(B)(iii)) taxpayers must ensure that laborers and mechanics are paid wages at rates not less than prevailing wage rates for construction of the qualified facility. Taxpayer D did not have a process for laborers and mechanics to report suspected failures to pay prevailing wages and/or suspected failures to classify workers in accordance with applicable wage determinations. Additionally, Taxpayer D did not have a procedure for the review of wages paid to laborers and mechanics to ensure that wages at rates not less than the applicable prevailing wage rate were paid, nor did Taxpayer D undertake any actual review of the wages paid to any laborers and mechanics employed in the construction of the qualified facility. Taxpayer D failed to maintain any records documenting wages paid to laborers and mechanics in connection with the construction of the facility. Considering all of the facts and circumstances, Taxpayer D’s failure to satisfy the Prevailing Wage Requirements would be considered due to intentional disregard for purposes of this paragraph (c)(3) and Taxpayer D would be subject to the enhanced correction and penalty payments described in paragraph (c)(3)(i) of this section.

(B) Example 2. Taxpayer E failed to satisfy the Prevailing Wage Requirements with respect to the construction of a qualified facility. Taxpayer E included contract language that requires the payment of prevailing wages in the contract executed with the contractor and required similar language be included in all subcontracts. Taxpayer E posted in a prominent place at the qualified facility that in order to claim tax benefits (that is, the increased credit amount described in section 45(b)(6)(B)(iii)) employers must ensure that laborers and mechanics are paid wages at rates not less than prevailing wage rates for the construction of the qualified facility. Additionally, Taxpayer E created procedures for a quarterly review of the applicable classifications of laborers and mechanics according to the actual duties performed by those laborers and mechanics and the actual wages paid to laborers and mechanics. In cases in which reviews found any instance that a laborer or mechanic was paid wages at rates less than the applicable prevailing wage rates, Taxpayer E promptly cured the failure. Considering all of the facts and circumstances, Taxpayer E’s failure to satisfy the Prevailing Wage Requirements would not be considered due to intentional disregard for purposes of this paragraph (c)(3) and Taxpayer E would not be subject to the enhanced correction and penalty payments described in paragraph (c)(3)(i) of this section. Taxpayer E would be subject to the normal correction and penalty payments described in paragraph (c)(1)(i) of this section.

(A) The laborer or mechanic is paid wages at rates less than the amount required to be paid under paragraph (b) of this section for not more than 10 percent of all pay periods of the calendar year (or part thereof) during which the laborer or mechanic was employed in the construction, alteration, or repair of the qualified facility; or

(B) The difference between the amount the laborer or mechanic was paid during the calendar year (or part thereof) and the amount required to be paid under paragraph (b) of this section is not greater than 5 percent of the amount required to be paid under paragraph (b) of this section.

(A) Bind all contractors and subcontractors on the construction project through the inclusion of appropriate specifications in all relevant solicitation provisions and contract documents;

(B) Contain guarantees against strikes, lockouts, and similar job disruptions;

(C) Set forth effective, prompt, and mutually binding procedures for resolving labor disputes arising during the term of the project labor agreement;

(D) Contain provisions to pay wages at rates not less than the prevailing rates in accordance with subchapter IV of chapter 31 of title 40 of the United States Code;

(E) Contain provisions for referring and using qualified apprentices consistent with section 45(b)(8)(A) through (C) and guidance issued thereunder; and

(F) Be a collective bargaining agreement with one or more labor organizations (as defined in 29 U.S.C. 152(5)) of which building and construction employees are members, as described in 29 U.S.C. 158(f).

(A) Example 1. Taxpayer F starts construction of a qualified facility on February 1, 2023. The facility is placed in service on October 10, 2023, and Taxpayer F claims the increased credit amount under section 45(b)(6)(B)(iii) on its 2023 tax return filed on April 15, 2024. Taxpayer F employs Laborer Z in the construction of the facility for a total of 36 weekly pay periods. Taxpayer F pays Laborer Z wages at the prevailing wage rate for all pay periods except for the pay periods ending on April 8, April 22, and May 20. Under the applicable prevailing wage rate, Laborer Z should have been paid a total of $35,000 in 2023, but was instead paid only $30,000. Taxpayer F ensures that all other laborers and mechanics employed in the construction, alteration, or repair of the facility are paid wages at the prevailing wage rate. Taxpayer F becomes aware of the failure on June 1, 2023. On June 19, 2023, Taxpayer F pays Laborer Z the correction payment required by paragraph (c)(1)(i) of this section. The penalty waiver applies to Taxpayer F. Although the difference between the amount Laborer Z was paid in 2023 and the amount required to be paid under the applicable prevailing wage rate was greater than five percent ($5,000/$35,000 = 14.29%), Laborer Z was paid below the prevailing wage rate for only three out of 36 pay periods, or 8.3% of the applicable pay periods. Furthermore, Taxpayer F made the correction payment before the last day of the first month that follows the end of the calendar quarter in which the failure occurred.

(B) Example 2. Taxpayer G starts construction of a qualified facility on February 1, 2024. The facility is placed in service on October 10, 2024, and Taxpayer G claims the increased credit under section 45(b)(6)(B)(iii) on its 2024 tax return filed on April 15, 2025. Taxpayer G hires Contractor M to assist in the construction, and Contractor M employs Laborer Y in the construction of the facility for a total of 36 pay periods. Contractor M pays Laborer Y wages at the prevailing wage rate for all pay periods except for the pay periods ending on February 24 and March 2 of 2024. Under the applicable prevailing wage rate, Laborer Y should have been paid a total of $50,000 in 2024, but was instead paid only $49,000. All other laborers and mechanics employed in the construction, alteration, or repair of the facility are paid wages at the prevailing wage rate. Taxpayer G learns on January 1, 2025, that Laborer Y was paid wages at rates that were less than the prevailing wage rates, and on January 19, 2025, Taxpayer G pays Laborer Y the correction payment required by paragraph (c)(1)(i) of this section. The penalty waiver does not apply to Taxpayer G. Laborer Y was paid wages at rates below the prevailing wage rate for two out of 36 pay periods, or 5.5% of the applicable pay periods, and the difference between the amount Laborer Y was paid in 2024 and the amount required to be paid under the applicable prevailing wage rate was $1,000, which is only 2% of the amount required to be paid under the applicable prevailing wage rate. However, because Taxpayer G did not make the correction payments until January 19, 2025, which was later than the last day of the first month that followed the end of the calendar quarter in which the failure occurred, Taxpayer G does not qualify for the penalty waiver. Taxpayer G must pay a penalty of $5,000 with respect to the failure.

(C) Example 3. Taxpayer H starts the construction of a qualified facility on April 8, 2024. The facility is placed in service on December 1, 2024, and Taxpayer H claims the increased credit amount under section 45(b)(6)(B)(iii) on its 2024 tax return filed on April 15, 2025. Taxpayer H employs Laborer X in the construction of the facility for a total of 34 pay periods. Due to a failure to classify workers in accordance with the wage determination, Taxpayer H pays Laborer X wages at rates below the prevailing wage rates for the first 12 pay periods. Under the applicable prevailing wage rate, Laborer X should have been paid $20,000 during those 12 pay periods, but was instead paid only $17,000. All other laborers and mechanics employed in the construction, alteration, or repair of the facility were paid wages at the prevailing wage rates. Taxpayer H becomes aware of the failure on July 15, 2024, and on July 30, 2024, Taxpayer H pays Laborer X the correction payments required by paragraph (c)(1)(i) of this section. For the 22 pay periods from July 1, 2024, through December 1, 2024, Taxpayer H pays Laborer X the correct prevailing wage rate in amounts that total $41,000. The penalty waiver applies to Taxpayer H. Taxpayer H made the correction payment on July 30, 2024, which was before the last day of the first month that followed the end of the quarter in which the failures occurred. Although Laborer X was paid wages at a rate below the prevailing wage rate for 35% (12 pay periods with underpayments/34 total pay periods) of the applicable pay periods, the difference between the total amount Laborer X was paid in 2024 and the amount required to be paid under the applicable prevailing wage rate was $3,000, which is only 4.9% of the total amount required to be paid to Laborer X under the applicable prevailing wage rate ($3,000/$61,000).

(D) Example 4. Taxpayer I begins construction of a qualified facility on August 29, 2024. The facility is placed in service on June 30, 2025, and Taxpayer I claims the increased credit amount under section 45(b)(6)(B)(iii) on its 2025 tax return. Taxpayer I employs Laborer W in the construction of the facility for a total of 25 weekly pay periods in 2025. Taxpayer I pays Laborer W wages at or above the prevailing wage rate for all pay periods except for the pay periods ending on April 12, May 10, and June 14. Under the applicable prevailing wage rate, Laborer W should have been paid $25,000 in 2025, but was instead paid only $20,000. Taxpayer I ensures that all other laborers and mechanics employed in the construction, alteration, or repair of the facility are paid at the prevailing wage rate. Taxpayer I has in place a pre-hire collective bargaining agreement, but the agreement does not contain a provision for referring and using qualified apprentices. Taxpayer I becomes aware of the failure to pay Laborer W at the prevailing wage rate on June 30, 2025, and on July 4, 2025, Taxpayer I pays Laborer W the correction payment required by paragraph (c)(1)(i) of this section. The penalty waiver does not apply to Taxpayer I. The difference between the amount Laborer W was paid in 2025 and the amount required to be paid under the applicable prevailing wage rate was $5,000, which is 20% of the amount required to be paid under the applicable prevailing wage rate. Laborer W was paid below the prevailing wage rate for three out of 25 pay periods, or 12% of the applicable pay periods. Taxpayer I does not have in place a Qualifying Project Labor Agreement because the pre-hire collective bargaining agreement does not contain a provision for referring and using qualified apprentices as required by paragraph (c)(6)(ii)(E) of this section.

(E) Example 5. Taxpayer J intends to construct a qualified facility and claim the increased credit amount under section 45(b)(6)(B)(iii). Taxpayer J executes a contract for the construction of the facility and engages in construction activities as defined in paragraph (d)(3) of this section starting August 1, 2023. Taxpayer J began construction as of September 1, 2023, pursuant to the Physical Work Test in Notice 2022-61. During the period of August 1 to September 1 of 2023, Taxpayer J paid all laborers and mechanics wages at rates below the applicable prevailing wage rates in reliance on Notice 2022-61 regarding when construction began for purposes of satisfying the requirements of section 45(b)(7). After September 1, 2023, Taxpayer J paid all laborers and mechanics wages at the prevailing wage rate for the appropriate classification for work performed on the facility. Within 180 days of June 25, 2024, Taxpayer J makes correction payments to all affected laborers and mechanics for the period of August 1, 2023, to September 1, 2023, equal to the amount described in paragraph (c)(1)(i) of this section. Pursuant to paragraph (c)(6)(iii) of this section, the penalty under paragraph (c)(1)(ii) of this section is waived.

(A) Individual working in professional capacity. Taxpayer hires an architect (Architect) to design a qualified facility and general layout of the site including access roads and ancillary buildings to support the facility. Taxpayer engages a general contractor (Contractor) to construct the qualified facility based on the drafting plans of Architect. Contractor hires an electrical engineer (Engineer) to assist Architect and Contractor with design and placement of the electrical systems necessary to support the qualified facility. Engineer oversees and inspects construction of the electrical systems to ensure the systems conform to the facility’s specifications and Architect’s drafting plans. Architect and Engineer do not perform any actual duties of a laborer or mechanic during their employment with Taxpayer and Contractor. Architect and Engineer are working in a professional capacity as defined under 29 CFR part 541 and are exempt employees under the DBA. Architect and Engineer are not considered laborers and mechanics for the duration of their employment for purposes of this section and Taxpayer does not need to ensure they are paid wages at rates not less than the prevailing wage rates for purposes of claiming the increased credit amount under section 45(b)(6)(B)(iii).

(B) Working foreperson. A supervisory employee who is a working foreperson (Foreperson) spends 60% of the time during the workweek (24 hours of a 40 hour workweek) performing administrative functions such as preparing timecards, supervising work on the qualified facility and arranging for deliveries. Foreperson spends the remaining 40% (16 hours) of the time performing the duties of an electrician with respect to construction of a qualified facility. Because Foreperson devoted more than 20% of their time during the workweek to laborer or mechanic duties, Foreperson must be paid wages at rates not less than the electrician’s applicable prevailing wage rate for the 16 hours spent doing the duties of an electrician for purposes of the Prevailing Wage Requirements.