IRS Instruction 7220 – In the realm of tax credits related to clean energy and sustainable projects, complying with prevailing wage and apprenticeship (PWA) requirements is crucial for maximizing benefits. IRS Form 7220, titled Prevailing Wage and Apprenticeship (PWA) Verification and Corrections, plays a key role in this process. This form helps taxpayers demonstrate adherence to these rules, unlocking increased credit or deduction amounts under various provisions of the Internal Revenue Code. Whether you’re involved in renewable energy production, energy-efficient buildings, or carbon sequestration, understanding Form 7220 instructions can ensure accurate filing and avoid penalties.
This article breaks down everything you need to know about IRS Instruction 7220, including its purpose, filing requirements, and step-by-step guidance on completion. We’ll draw from official IRS sources to provide reliable, up-to-date information as of 2026.
What Is IRS Form 7220 and Its Purpose?
Form 7220 is designed for taxpayers claiming enhanced tax credits or deductions by meeting PWA requirements. These requirements stem from the Inflation Reduction Act (IRA) and aim to ensure fair wages for workers and promote apprenticeship programs in qualifying projects.
The primary purpose of the form is twofold:
- Verification: To report details confirming that prevailing wages were paid to laborers and mechanics, and that apprenticeship labor hour and participation thresholds were met.
- Corrections and Penalties: To calculate and report any corrective payments or penalties for non-compliance, allowing taxpayers to cure deficiencies and still claim bonuses.
This form must be attached to specific tax returns when claiming increased amounts on forms like Form 3468 (Investment Credit), Form 7205 (Energy Efficient Commercial Buildings Deduction), Form 7210 (Clean Hydrogen Production Credit), and others. It’s required for each qualifying facility, project, or property, and applies to construction phases as well as post-placement alterations or repairs.
Exceptions include cases where the Beginning of Construction (BOC) occurred before January 29, 2023, or the One Megawatt exception applies for certain facilities. No form is needed for credits under sections 45L (New Energy Efficient Home Credit) or 45U (Zero-Emission Nuclear Power Production Credit) regarding apprenticeships, as they have modified rules.
Who Must File Form 7220?
You must file Form 7220 if you’re claiming an increased credit or deduction amount based on PWA compliance for a facility placed in service or for alterations/repairs in the current tax year. This applies to:
- Taxpayers involved in clean energy projects, such as solar, wind, hydrogen production, or carbon capture.
- Developers of energy-efficient homes or commercial buildings.
- Entities making elective payment elections or transfers under sections 6417 or 6418.
A separate Form 7220 is required for each facility. For ongoing compliance, filing is necessary for alterations or repairs within specified recapture periods (e.g., 5 years for sections 48/48E, 10 years for most others, 12 years for section 45Q). If no alterations or repairs occurred, attach a statement explaining this.
Do not file if exceptions like BOC or the One Megawatt rule apply, or for credits without apprenticeship mandates.
Key Requirements: Prevailing Wages and Apprenticeships
Prevailing Wage Requirements
Laborers and mechanics (including apprentices) must be paid at least the prevailing wage rates determined by the U.S. Department of Labor for similar work in the area. This includes:
- Wages during construction, alteration, or repair.
- Fringe benefits, such as health insurance or retirement contributions (excluding legally mandated benefits).
“Construction” encompasses installation, expansion, or re-equipping, but excludes routine maintenance like cleaning or inspections. Requirements vary by credit type—for instance, section 45U has no prevailing wage for initial construction, only for repairs.
If wages fall short, corrections involve paying the difference plus interest (at the federal underpayment rate plus 6 percentage points). A $5,000 penalty per affected worker applies, unless waived under specific conditions like timely corrections or a qualifying Project Labor Agreement (PLA).
Apprenticeship Requirements
During construction, a percentage of total labor hours (10-15%, depending on the start date) must be performed by qualified apprentices from registered programs. Key rules:
- Maintain apprentice-to-journeyworker ratios.
- If employing four or more individuals, hire at least one apprentice.
- No requirements for sections 45L or 45U.
A “Good Faith Effort” exception applies if requests for apprentices are denied or unanswered within five business days. If unmet, a $50 per deficient labor hour penalty is due.
Step-by-Step Instructions for Completing Form 7220
Follow IRS Instruction 7220 for precise guidance. The form has five parts; complete multiple copies of Parts II-V as needed.
Part I: Facility/Project Information
- Line 1: Enter pre-filing registration number (if applicable).
- Lines 2a-c: Describe the facility, including address and coordinates.
- Line 3: Date construction began (using Physical Work Test or 5% Safe Harbor).
- Line 4: Placed-in-service date.
- Line 5: Check if placed in service this year.
- Line 6: Indicate the form claiming the increased amount.
- Line 7: Check if under a qualifying PLA.
- Line 8: Check if reporting prior corrections.
- Line 9: Check if claiming Good Faith Effort.
- Line 10: Check if alterations/repairs occurred this year.
Part II: Prevailing Wages Paid
List details for the taxpayer, contractors, and subcontractors: | Column | Description | |——–|————-| | (a) | Employer name | | (b) | EIN | | (c) | Work classification | | (d) | Number of laborers/mechanics | | (e) | Total hours worked | | (f) | Hourly wages paid | | (g) | Fringe benefits | | (h) | Total compensation ((f) + (g)) |
Part III: Apprenticeship Requirements and Penalties
Similar table format, including apprentice numbers, hours, and any penalties ($50 per unsatisfied hour).
Part IV: Corrections and Penalties for Prevailing Wage
Report corrective payments, interest, and $5,000 penalties per worker.
Part V: Good Faith Effort Exception
Detail apprentice requests, denials, and supporting evidence.
Attach the form to your tax return and report penalties on Form 4255 if applicable.
Common Mistakes and Penalties to Avoid
- Incomplete Records: Maintain detailed payroll and apprenticeship records for at least three years, as required under the Paperwork Reduction Act.
- Misclassifying Workers: Ensure only manual laborers are counted; exclude administrative roles.
- Ignoring Ongoing Compliance: For post-construction repairs, failure can trigger recapture.
- Penalty Waivers: Leverage PLAs or timely corrections to avoid fees.
Penalties can add up quickly—$5,000 per worker for wage issues or $50 per hour for apprenticeships—so proactive compliance is essential.
Resources and Where to Find More Information
For the latest Form 7220 and instructions, visit the official IRS website. Download the PDF at www.irs.gov/pub/irs-pdf/f7220.pdf or www.irs.gov/pub/irs-pdf/i7220.pdf for instructions. Consult Treasury Decisions (T.D.) 9998, 10015, and 10024 for regulatory details.
If you’re unsure about your eligibility or how to apply PWA rules, consider consulting a tax professional specializing in energy incentives.
By properly using Form 7220, you can secure significant tax savings while supporting fair labor practices in sustainable industries. Stay updated with IRS revisions, as the form was last updated in December 2025.