The Inflation Reduction Act (IRA) impacts prevailing wage penalties by introducing specific requirements and penalties for non-compliance. Here are the key points:
Prevailing Wage Requirements and Penalties
- Prevailing Wage Requirements: Taxpayers seeking increased tax credits or deductions must ensure that all laborers and mechanics, including those hired by contractors and subcontractors, are paid at prevailing wage rates determined by the Department of Labor (DOL) under the Davis-Bacon Act.
- Penalties for Non-Compliance: If prevailing wages are not paid, taxpayers can correct the issue by paying the underpaid amounts plus interest and a penalty to the IRS. The penalty is $5,000 per laborer or mechanic underpaid in the year.
- Enhanced Penalties for Intentional Disregard: If the IRS determines that the failure to pay prevailing wages was intentional, the correction payment to the worker is tripled, and the penalty to the IRS increases to $10,000 per worker.
- Cure Provisions: Taxpayers can avoid penalties by making corrective payments promptly. Recent regulations provide flexibility in penalty waiver if corrections are made early.
Exceptions and Waivers
- Project Labor Agreements: Penalties may not apply if a qualifying project labor agreement is in place and corrections are made timely.
- Good Faith Effort: Similar to apprenticeship requirements, taxpayers who demonstrate good faith in correcting errors might avoid penalties.
Overall, the IRA aims to ensure fair compensation for workers in projects eligible for tax credits by enforcing prevailing wage rules and imposing penalties for non-compliance, while also providing mechanisms for correction and penalty avoidance under certain conditions.
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