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September 12, 2023

Inflation Reduction Act: Investment Tax Credit Labor Requirements

Our IRA video series dives into the details of the recent legislation to help you understand your options.

The Inflation Reduction Act creates significant opportunities for building owners to ready their operations for long-term resiliency and eliminate deferred maintenance, realize cost savings, accelerate decarbonization and reach equitable outcomes for generations to come.

Isabella Verdugo, McKinstry’s Federal Funding Strategist, explains labor requirements for the Investment Tax Credit (ITC):

Inflation Reduction Act: Investment Tax Credit Labor Requirements
Learn more about the IRA’s impact
Inflation Reduction Act: Investment Tax Credit Labor Requirements
Learn more about the IRA’s impact

Many programs in the ITC will allow for a larger incentive if Labor Requirements are met. Labor requirements are comprised of two categories that a client must meet. The first is that laborers must be paid a prevailing wage. This is set by the Department of Labor and dependent on the location of the laborer and the type of work. The second set of requirements is apprenticeship utilization ratios. Based on the year that a project begins and the total amount of labor hours, there is a set percentageof apprenticeship hours required (Image 1). The total labor hours does not include hours performed by forman, superintendents, and administrative professionals. In addition, if a contractor or subcontractor contracts 4 or more individuals to complete a part of a project, one or more of those individuals must be an apprentice. If a region or union has stricter apprentice utilization ratios, then these must also be met.

Required Apprenticeship Hours

Labor requirements are triggered if a project is over one megawatt and begins construction after January 29, 2023. If labor requirements are not met, only a 6% base credit can be received. If the labor requirements are met, a 30% base credit can be received. Labor requirements also impact the bonus credits that a project may be eligible for. When labor requirements are not met, the bonus credits are only 2% each. When labor requirements are met, the bonus credits are stackable at 10% each on top of the base credit.

Both prevailing wages and apprenticeship utilization ratios require meticulous record keeping to ensure that the project meets labor requirements. These records must be kept for 10 years, starting at when the project is placed in service. During these 10 years, any repairs or alterations must also meet the labor requirements. These records should be kept on hand and will show the wages that laborers are being paid and that all apprenticeship ratios were met.

McKinstry is ready to be your partner and has experience in meeting different prevailing wage requirements as well as apprenticeship utilization ratios.

For more information and resources, please visit our IRA blog or contact us below.

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Financial Disclaimer: McKinstry is not engaged in providing legal, tax or financial advice. The information provided herein is intended only to assist you in your decision-making and is broad in scope. Accordingly, before making any final decisions you should consider obtaining additional information and advice from your accountant or other financial advisers who are fully aware of your specific circumstances.

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