Decoding the Inflation Reduction Act: A Construction Contractor's Companion

In 2022, shortly after the nation began to recover from the COVID-19 pandemic, Congress passed the Inflation Reduction Act (IRA). The act has been touted as the largest and most impactful energy incentive bill to ever pass through the U.S. Congress. Beyond offering tax incentives to residential contractors and homeowners, the act was also a huge winner for construction contractors.

The IRA provided a framework of funds and incentives for contractors who are facing rising costs and changing dynamics in the market. The IRA set aside $369 billion over ten years to support renewable energy, pollution reduction, and environmental justice. In the two years since the IRA’s passage, it has been credited for a solar-panel manufacturer investing $2.5 billion in a pair of facilities in Georgia and the U.S. Department of Energy loaning billions to firms for building facilities that will manufacture batteries for electric vehicles. 

While it may seem like enough money for everyone, there is a lot to learn about the IRA and its intricacies before contractors can cash in. 

Breaking Down Inflation Reduction Act Credits for Construction Projects

The IRA provides funding for qualifying projects across more than 70 different tax credits. Those include two major credits the IRA modified and extended to make money available for qualifying projects:

• The clean energy Investment Tax Credit (ITC) can provide up to a 30% credit for qualifying investments in wind, solar, energy storage, and other renewable energy projects. 
• The Renewable Energy Production Tax Credit (PTC) can provide a credit of up to 2.75 cents per kilowatt-hour in 2022 dollars (adjusted for inflation annually) of electricity generated from qualified renewable energy sources.

Additionally, the IRA provides at least $4 billion from the Advanced Energy Project Credit – an allocated credit of up to 30% for advanced energy manufacturing investments – to projects in areas that have seen the closure of a coal mine or retirement of a coal-fired electric generating unit.

The benefits available to certain projects through the IRA can increase dramatically – from a 6% base tax credit for the ITC to more than 50% collectively -- if certain standards are met. To take full advantage of the IRA, employers on qualifying projects must:

• Hire a sufficient proportion of workers from registered apprenticeship programs, and ensure those apprentices account for a certain percentage of total hours worked. For projects that started in 2023, apprentices needed to account for 12.5% of labor hours spent on facility construction, alteration or repair work, depending on the project. That number moved for projects that started in 2024 to at least 15% of labor hours. Some states have decreed different percentages which supersede the 15% mark set by the IRA, including New Mexico which passed a state provision requiring apprentices account for 17% of labor hours worked. 
• Pay workers the local prevailing wage, defined in accordance with Department of Labor standards, for work on facility construction, as well as for alterations and repairs in a five to 12 year period, depending on the credit, after a facility is placed in service.

Unlocking Inflation Reduction Act Credits: Apprentices, Journeyworkers and Prevailing Wage

Understanding prevailing wage and apprenticeship requirements are critical to taking advantage of the IRA and could save projects millions.

Baker Tilly, a leading tax advisory firm, explains it like this: “Take for instance a $5.4 million eligible energy property. They could either receive a $324,000 with only the base credit or a $1.62 million credit, (if) the project meets prevailing wage and apprenticeship requirements.”

Apprenticeships and Journeyworkers

By utilizing Registered Apprenticeships, employers can develop and prepare their future workforce. The IRA asks project owners to lean into apprenticeship programs. Aerotek has worked with clients to successfully launch apprenticeship programs and has recently forged a partnership to ensure we can accelerate this process and ensure programs are registered with the Department of Labor. The IRA’s apprenticeship-related benefits are only available to programs registered with the Department of Labor.

When apprentices are required, project owners must also ensure that apprentices are employed in accordance with any “apprentice-to-journeyworker ratios” required by the U.S. Department of Labor or applicable state agency.

That is to say, it’s not just about getting an apprentice enrolled. To qualify for IRA benefits, project owners must also identify, register and develop a group of journeyworkers that can support those apprentices. Assuming a 1:1 apprentice-to-journeyworker ratio, that means if you have 15% Apprentices -- you also need 15% journeyworkers. That means 30% of your workforce needs to be a part of a program.

Understanding what these requirements are and what records to keep is critical in making sure hours worked and apprentice-to-journeyworker ratios are qualifying projects for tax credits. 

Prevailing Wage

Similarly, the IRA’s prevailing wage requirements call for meticulous bookkeeping and expertise. Prevailing wage laws were created to ensure workers earn fair wages for their labor and are fairly commonplace in projects that touch public sector funding. However, prevailing wage requirements under the IRA require project owners to play a role as an agent. 

With more than 40 years of experience serving industrial clients and a robust prevailing wage program, Aerotek is prepared to consult with its clients on IRA prevailing wage requirements and implement prevailing wage immediately. Aerotek also offers certified payroll reporting and direct uploads to whatever compliance tracking methods its clients prefer.

The IRA, while daunting, presents an opportunity for contractors across America to beat back the pains of inflation and generate significant savings.

Aerotek’s services team offers access to a ready-made apprenticeship program, a payroll and invoicing team with the experience and capabilities to handle complex payrolls and billings, and the backing of Aerotek’s expansive talent network including journeyworkers across North America.

To connect with one of Aerotek’s construction support services experts to discuss how we can provide expertise, solutions and people you need for your construction project, contact us today.