Today, as part of the Biden-Harris Administration’s Investing in America agenda, the U.S. Treasury Department (Treasury) and Internal Revenue Service (IRS) released initial guidance on the Domestic Content Bonus for the Investment Tax Credit (ITC) and Production Tax Credit (PTC) introduced by the Inflation Reduction Act. The Biden-Harris Administration is committed to ensuring that the clean energy infrastructure that will power America’s future will be built by American workers here at home. Today’s guidance builds on other provisions of the Inflation Reduction Act to help ensure that the law’s historic incentives for building a clean energy economy will harness American innovation and drive investment in America’s manufacturing base.
With the release of today’s guidance, Treasury and IRS clarify how clean energy projects and facilities can qualify for an additional tax credit by sourcing iron and steel, and manufactured products, from the United States. Under the Production Tax Credit, qualifying facilities across the clean energy sector will be eligible to receive a 10 percent bonus credit for meeting the domestic content requirement clarified by today’s guidance. Under the Investment Tax Credit qualifying projects will be eligible for up to a 10 percentage point bonus credit. To maximize potential tax credits, businesses will also need to prove that they are paying good wages and creating valuable apprenticeship opportunities.
The Domestic Content Bonus is a distinct incentive complementing other Biden-Harris Administration initiatives to incentivize or require the use of domestic content in federally funded infrastructure projects. The Inflation Reduction Act statute cross-references the Federal Transit Administration’s Buy America regulations. To arrive at the safe-harbor categorizations of certain components in today’s Notice, Treasury was guided by input from the Federal Transit Administration as well as by expert advice from the Department of Energy on the details of clean energy technologies and their supply chains.
The safe-harbor categorizations of certain components in the Domestic Content Bonus guidance do not constitute precedent for future FTA implementation of its Buy America requirements for federally funded public transportation projects, nor do they affect implementation of the Build America, Buy America standards in the Bipartisan Infrastructure Law. That means approaches to sourcing domestic content that satisfy the requirements of the Inflation Reduction Act statute for purposes of the Domestic Content Bonus Credit may not be applicable to domestic sourcing requirements for federal grants, procurements, or other federal programs.
To determine whether a clean energy project or facility is eligible for the Domestic Content Bonus, taxpayers may consult the Treasury guidance to determine whether various pieces of the project or facility are considered iron and steel products or manufactured products. Iron and steel products must be 100 percent made in America for the project to qualify for the Domestic Content Bonus, and Treasury’s guidance affirms the longstanding “melted and poured” standard for steel. For manufactured products, at least 40 percent of the total costs of all manufactured products and their components in land-based clean energy projects or facilities must be mined, produced, or manufactured in the United States; for offshore wind projects, that minimum threshold is 20 percent. These percentages increase over time.
To give an example, consider a land-based wind energy project. Under Treasury’s guidance, the tower and the steel rebar in the foundation are considered iron and steel products and must be 100 percent made in America. The turbine that sits on top of the tower is considered a manufactured product. Forty percent of the costs of all manufactured products and components in the project— including, for example, the costs of the nacelle, blades, rotor hub, and power converter—must be attributable to manufactured products and components made in America.
In addition, the Treasury guidance clarifies how the manufactured product cost calculation applies to the treatment of labor costs. Specifically, the guidance makes clear that labor costs for a manufactured product only count toward the manufactured products calculation when the manufactured product and its components are made in the United States, and that labor costs associated with on-site assembly of a clean energy project or facility do not count toward the calculation. In other words, labor costs cannot be considered as standalone costs separate from the costs of materials or components.
Under the Investing in America agenda, the Biden-Harris administration is ensuring that the bold action and investment unlocked by the Inflation Reduction Act will build critical clean energy supply chains here at home and create good-paying jobs for hard-working Americans. The Domestic Content Bonus creates a strict, yet achievable, incentive to bolster demand for domestic iron and steel and manufactured products that comprise the clean energy supply chain. Combined with additional production incentives introduced by the Inflation Reduction Act, the Biden-Harris Administration is leveraging every tool in the policy tool box to unlock investment in the domestic solar, wind, and storage sectors during this decisive decade.
In releasing today’s guidance, the Treasury and the IRS continue to implement the historic measures introduced by the Inflation Reduction Act at a record pace. We encourage you to learn more about all of the ways that the Inflation Reduction Act’s provisions are driving record investment in America’s clean energy future.