Renewable Energy Credits and Workforce Requirements in the Inflation Reduction Act

The Inflation Reduction Act revamped renewable energy tax credits and introduced a mechanism to increase certain credits by five times if specific Prevailing Wage and Apprenticeship Requirements are met, according to an article by Baker & Hostetler. The IRS and Department of the Treasury issued guidance on these requirements and finalized regulations in June 2024, effective from August 26, 2024.

The article highlights the following key points from the Inflation Reduction Act:

Prevailing Wage Requirements: Projects must pay laborers and mechanics at least the local prevailing wage. Projects starting construction before January 29, 2023, or with less than one megawatt output are exempt from these requirements.

Apprenticeship Requirements: A certain percentage of labor hours must be performed by apprentices, and contractors with four or more workers must employ at least one apprentice. Apprentices must be part of a registered program, and their wage rates should align with these programs.

Corrections and Penalties: Taxpayers who fail to meet the wage requirements must make back payments and pay interest and penalties. Intentional failures incur higher penalties. Penalties can be waived under specific conditions, such as if the work is covered by a project labor agreement.

Recordkeeping: Taxpayers must keep detailed records to prove compliance, including payroll records, information on laborers and mechanics, apprentice records, and documentation of any corrections or complaints.

The final regulations emphasize compliance by focusing on contract execution timing rather than when construction begins. They provide flexibility in seeking wage determinations and clarify rules for apprenticeships. Observations indicate that these changes will aid in cost control and project planning, though they may increase labor costs for those new to organized labor.