Can PWA Penalties Exceed the Tax Credit?

The short answer

Yes. Prevailing wage and apprenticeship (PWA) correction payments and penalties are based on workers, wages and hours, not on the size of the credit. In the hypothetical below, a $100 million solar project claiming $50 million in credits faces about $17.3 million in cure costs, or about $82.5 million if intentional disregard applies.

This is a deliberately severe example built to show how the math works. It is not a forecast for any project.

By Alex Jones and Reed Dalton. Adapted from the DSPTCH IRA Field Guide (January 2025). Updated November 2026.

The hypothetical project

An EPC picks a wage determination from SAM.gov without asking the Department of Labor to confirm it. The classifications turn out to be wrong. The project's apprentices also turn out not to be in a registered program, so none of their hours count.

$100 million tax credit basis: 30% ITC plus 10% domestic content and 10% energy community, for $50 million in credits
Without PWA, the same credits are worth $10 million
200 workers for 50 weeks, one calendar year, 60 hours a week
170 workers paid as journeyworkers, underpaid $10 in wages and $7 in fringe an hour
30 workers paid as apprentices, underpaid $5 in wages and $8 in fringe an hour
15% labor hours requirement on 600,000 total hours, so 90,000 hours short
Interest assumed at 10% for one year: the federal short-term rate, assumed at 4%, plus 6 points. The real rate resets quarterly

How the cure costs add up

Standard: about $17.3 million

Backpay: $10,765,000
Interest: $1,076,500
$5,000 per underpaid worker: $1,000,000
$50 per missed apprentice hour: $4,500,000
Total: $17,341,500

Intentional disregard: about $82.5 million

Backpay at three times: $32,295,000
Interest at three times: $3,229,500
$10,000 per underpaid worker: $2,000,000
$500 per missed apprentice hour: $45,000,000
Total: $82,524,500

What this leaves out

The example skips participation penalties, overtime and fringe details, and state law. To keep the math simple, it also keeps a separate lower rate for the 30 workers treated as apprentices. Workers outside a registered program are owed the full prevailing rate, so the real number could be higher.

PWA penalty FAQ

What happens if the taxpayer does not cure?

If the IRS determines the prevailing wage requirements were not met and the taxpayer does not make the correction and penalty payments, the penalty is not assessed, but the taxpayer loses the increased credit amount. The base credit may still be available (26 CFR 1.45-7(c)). In this example, that would cut $50 million of credits to $10 million.

How long does a taxpayer have to cure?

180 days after a final IRS determination for correction and penalty payments.

Can penalties be avoided?

Some can. The prevailing wage penalty is waived if the correction is paid by the last day of the first month after the quarter of the failure, and either the failure affected 10% or less of the year's pay periods or the shortfall was 5% or less of wages required. A qualifying project labor agreement has its own waiver. The apprenticeship rules have a good faith effort exception.

How is intentional disregard avoided?

There is a rebuttable presumption of no intentional disregard if correction and penalty payments are made before the taxpayer receives notice of an examination. Regular payroll review and prompt fixes also help you show what you did.

Does insurance solve this?

Not on its own. Read what your tax credit policy excludes and what it requires of you. A policy sized to the credit may not match cure costs, because those costs follow workers and hours.

Keep reading

Sources: 26 CFR 1.45-7(c), 26 CFR 1.45-8. Citations are to the section 45 regulations; other credits with PWA requirements apply similar rules. Hypothetical figures only. General information, not legal or tax advice.