Last week, we looked at some of the tax incentives that construction companies can take advantage of related to the types of work they do, including the R&D Tax Credit and the 179D Deduction. But as contractors continue to transform their operations through technology and train new generations of workers, they might not be aware that there are a number of tax incentives and credits to help offset these costs as well.
A Renewed Focus on Training and Education
The federal government already offers a number of individual incentive programs for educational credits or deductions through the Internal Revenue Service, including the American Opportunity Credit, the Lifetime Learning Credit and the Tuition and Fees Deduction. And a handful of states have their own incentive programs designed to help offset the costs of training and education, including learning new construction processes, software and other technologies (more below).
The Aspen Institute, in an August 2018 report, noted what it called an alarming trend: a steady decline in the amount employers are investing in their workforce. From 1996 to 2008, the percentage of workers receiving employer-sponsored or on-the-job training fell 42 percent and 36 percent, respectively. This decline was widespread across industries, occupations, and demographic groups. Between 2003 and 2013, the number of formal programs that combine on-the-job learning with mentorships and classroom education – generally considered to be the most effective programs – fell 40 percent.
The average employer spends approximately $30 per hour on employee training and workplace training has turned into a $130 billion global industry. There are currently a number of potential tax plans being debated in Congress that could provide additional relief for American companies to offset costly training expenses for its worker, spurring more on-the-job learning.
In its report, the Aspen Institute proposed a new tax credit, The Worker Training Tax Credit, a business tax credit to offset a portion of the cost of new training activities for non-highly compensated workers. The credit would mirror the policy design of the current R&D Tax Credit. Businesses would establish a base expenditure level for qualified training expenses, which would be determined by averaging the amounts spent in each of the three years prior to the current tax year. The value of the tax credit would be 20 percent of the difference between the current year qualified training expenditure and the base expenditure level. The credit would only cover training for non-highly compensated workers (less than $120,000 per year), the standard currently used in the Internal Revenue Code.
Eligible training activities would include employer-provided training that leads to an industry-recognized credential. This is a perfect way to train the construction workforce on new technologies and software that would improve productivity and profitability.
State Programs Laying the Foundation
While federal programs are still being debated and refined, a number of U.S states have stepped up to the plate to provide incentives of their own to foster more training and education among workforces. Here’s a look at some of these programs:
New York — The Employee Training Incentive Program is a tax credit available to New York State employers who are participants in the program. The credit is equal to 50 percent of the eligible training costs, up to $10,000 per employee and 50 percent of the stipend paid to an intern (up to $3,000 per intern).
California — California’s Employment Training Panel provides funding to employers to assist in upgrading the skills of their workers through training that leads to good-paying, long-term jobs. The ETP is funded through a special payroll tax and the ETP staff assists companies in applying for funds.
Connecticut — The state’s Human Capital Investment Tax Credit is equal to 5% of the amount paid or incurred by the corporation for a human capital investment. Those include in-state training or education, worker education programs, donations or capital contributions to higher learning institutions in Connecticut, child care subsidies paid to employees and contributions to the states Development Account Reserve Fund.
Arizona — The Arizona Job Training Program is a job-specific reimbursable grant program that supports the design and delivery of customized training plans for employers creating net new jobs in the state. Under a “net new” grant, an employer creating net new jobs can apply for a grant to receive up to 75% of their eligible training expenses reimbursed.
Georgia — Among the numerous employee hiring and training programs offered by the state, Georgia businesses can offset their investment in retraining employees to use new equipment or learn new skills through a retraining tax credit. The credit equals 50 percent of direct training expenses, up to $500 credit per full-time employee, per training program.
Kentucky — As part of the Bluegrass State Skills Corporation, Kentucky offers two programs to encourage training and education. The competitive Grant-in-Aid program provides funding reimbursements for worker training at new and expanding companies and occupational upgrade training for workers of existing companies. The Skills Training Investment Credit offers state income tax credits for companies to offset the costs for approved training programs provided to incumbent employees.
Rhode Island — Rhode Island provides a Job Training Tax Credit for employers that hire an apprentice in a variety of specialty trades. Employers can be eligible for a tax credit of 50% of actual wages or $4,800, whichever is less per apprentice. The apprentice must be enrolled in a registered, qualified program through the state’s Department of Labor and Training’s State Apprenticeship Council.
Virginia — The state’s Worker Retraining Tax Credit provides up to 30% of the costs of providing eligible worker retraining to qualified workers. The program also provides 35% of the direct costs of providing manufacturing training or instruction to middle and high school students.
Ontario, Canada – The Canada-Ontario Job Grant provides direct financial support for employers who invest in training for their workforce. The grant can cover up to CAD$10,000 of training cost, provided the training meets certain standards.
Many other states and provinces provide similar programs or tax incentives. It’s worth a little bit of research through your state’s tax programs to see if your organization or your employees could qualify for these incentives.
Canada Tweaks Tax Measures to Spur Construction Investment
Canada is also providing tax incentives to construction firms investing in the country. A November report from the Canadian Press told of Finance Minister Bill Morneau’s proposed tax and incentive plan that would allow Canada to better compete with the United States in the wake of sweeping tax and regulatory changes there.
Among the biggest proposed changes: tax measures that would allow businesses to immediately write off the full cost of some types of machinery and equipment and allow companies of all sizes and in all sectors to expense a larger share of newly acquired assets. Clearly, this will benefit construction firms, which often count their fleets of equipment as their biggest expenses.
This is a move the Canadian Construction Association has long been advocating for, as it will allow contractors to free up capital and invest in other areas such as technology and continuing innovation.
With all of these incentives and more, there is a clear signal that now is the time for construction firms to modernize and digitize their operations and focus on reaching out to and training more construction professionals to bridge the skilled labor shortage. Viewpoint can help on all of these fronts. Visit www.viewpoint.com to learn more!