Contractors eligible for enhanced tax credits for energy projects, if they follow apprentice and prevailing wage rules

The real estate and construction industries are buzzing about the opportunities for enhanced Investment Tax Credits (ITC) for energy-related projects as included in the Inflation Reduction Act of 2022 (IRA). At the same time, both industries are confused about the criteria that must be met through the use of prevailing wage rates and registered apprentices.

Here is a summary of the prevailing wage and apprenticeship requirements of the IRA in order for the bonus 30% ITC to be awarded. Note that 6% is allowed even if the below requirements aren’t met but can increase to 30% for some projects.

Apprenticeship requirement

Relating to the construction of a qualified facility that produces energy from renewable sources, a certain percentage of the total labor hours must be done by qualified apprentices. (A qualified apprentice is an apprentice that is participating in a Registered Apprenticeship Program as defined by the National Apprenticeship Act.) Prior to Jan. 1, 2023, 10% of total craft hours must be performed by an apprentice. This increases to 12.5% of total craft hours prior to Dec. 31, 2023, and to 15% after Dec. 31, 2023. The apprentice-to-journeyworker ratio is subject to rules established by the Department of Labor (DOL) or applicable state apprenticeship program.

Every contractor or subcontractor who employs four or more individuals to perform construction, alteration or repair shall employ one or more qualified apprentices.

A contractor will be considered NOT to be in violation of these requirements if it makes a good faith effort to obtain a qualified apprentice from a registered apprenticeship program that is not met within five business days, or if it pays a penalty of $50 multiplied by total labor hours not satisfied by a qualified apprentice. This penalty can be increased by $500/hour if the Secretary finds that the failure was due to intentional disregard.

Under a registered apprenticeship program (credentialed by the DOL or a state agency), apprentices:

• Are paid on an incremental wage schedule based on experience and skill
• Receive a minimum of 2,000 hours or one year of on-the-job training
• Receive a minimum of 144 hours per year of classroom instruction