More specifically, increased energy tax credits through the IRA make it possible to claim as much as five times the base amount, meaning your business could turn a 6% energy tax credit into a 30% one simply by meeting the requirements.
So, what does it take to qualify for an increased energy tax credit through the IRA ? First, you'll need to make sure that the project your company is tackling qualifies as a “clean energy project.” Some common examples include projects related to:
The idea behind the increased energy tax credit is to incentivize businesses that are investing in clean energy initiatives. However, in addition to the type of project, the way businesses are hiring and paying workers on these projects is also an important factor.
Specifically, the IRA includes prevailing wage and registered apprenticeship (PWA) requirements that must be met by businesses to claim the larger credit.
In simplest terms, PWA requirements mean that businesses that pay workers fairly and make an effort to hire apprentices to work on their clean energy projects are permitted to claim a larger energy tax credit, up to five times the “typical” amount.
Meeting these requirements (and proving that you've met them), however, can be easier said than done. To qualify, for example, businesses need to:
In addition to meeting the above requirements, businesses looking to claim increased energy tax credits must keep detailed payroll documentation and employment records to prove their compliance at all times.
Part of the PWA requirements for increased energy tax credits includes a rule that businesses must rely on a certain percentage of registered apprentices to carry out the work. Some more specific details about the apprenticeship rules are as follows:
If your business is undertaking a qualifying clean energy project and is able to meet all the above requirements, you could qualify for a much larger energy tax credit. However, because these requirements are so precise and strict, it is important to ensure that your team is documenting everything as carefully as possible as there are serious penalties for noncompliance. Re-creation of the documentation can be burdensome, so it is imperative that business owners document along the way.
Not only could failure to meet the requirements result in a loss of your enhanced tax credit, but your business could also face substantial penalties (with interest) owed to the IRS when documentation doesn’t exist or is incomplete. Likewise, if you fail to meet requirements for paying employees or apprentices, you may have to pay back those wages with interest.
If you could claim an energy tax credit that's five times greater than the standard credit, of course you would! At the same time, with strict rules and PWA requirements, navigating the complexities of this enhanced tax credit can also be stressful, especially for those who aren't well versed in tax and employment law.
This is where it could be helpful to consult with a business professional, such as a business or financial consultant, for further guidance if your business is planning to take on a clean energy project in the near future. This way, you can determine how realistic it would be to meet the requirements of the increased tax credit and start taking steps now to prepare for compliance in the coming months.