Prevailing wage and apprenticeship requirements under the Inflation Reduction Act (IRA) significantly impact tax credit eligibility for various clean energy tax incentives. Here’s how these requirements affect eligibility:
Prevailing Wage Requirements
- Application: Taxpayers must pay laborers and mechanics employed in construction, alteration, or repair no less than the applicable prevailing wage rates, as determined by the U.S. Department of Labor.
- Eligible Credits: The prevailing wage requirement applies to credits such as the Alternative Fuel Refueling Property Credit, Renewable Electricity Production Credit, and others, as well as deductions like the Energy Efficient Commercial Buildings Deduction.
- Exception: Only the prevailing wage requirement applies to the New Energy Efficient Home Credit and Zero-Emission Nuclear Power Production Credit.
Apprenticeship Requirements
- Application: Taxpayers must employ apprentices from registered apprenticeship programs for a certain number of hours. The requirement includes meeting specific labor hour ratios (typically 10% to 15% of labor hours) and using qualified apprentices when employing more than four individuals for construction.
- Good Faith Effort Exception: Taxpayers are deemed to comply if they request apprentices and are denied due to reasons beyond their control or if the program fails to respond within five business days.
Impact on Tax Credit Eligibility
- Increased Credits: By meeting both prevailing wage and apprenticeship requirements, taxpayers can increase the base amount of certain clean energy tax incentives by five times.
- Exceptions to Requirements: Small facilities producing under 1 megawatt of electricity and projects that began construction before January 29, 2023, may be eligible for increased credits without meeting these requirements.
Compliance and Recordkeeping
- Record Requirements: Taxpayers must maintain detailed records to demonstrate compliance with prevailing wage and apprenticeship requirements. These records include payroll details, apprenticeship ratio compliance, and any correction payments made.
- Penalties for Non-Compliance: Failure to meet these requirements may result in penalties, but corrective actions can mitigate these penalties if taken promptly.
Overall, meeting prevailing wage and apprenticeship requirements is crucial for taxpayers seeking to maximize clean energy tax credits under the IRA.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/how-do-prevailing-wage-and-apprenticeship-requirements-affect-tax-credit-eligibility/
