Since the passage of the $1.2 trillion federal Infrastructure Investment and Jobs Act (IIJA) in November 2021, construction companies have been scrambling to prepare for a tidal wave of IIJA work. But what will companies need to know about financial reporting when jobs are let under the new legislation?
The IIJA includes several provisions for how contractors will need to report income and pay taxes, and contractors will need to understand how these new requirements will affect them. They’ll also need to take steps to line up resources to manage and account for this influx of jobs.
Here are some of the most important things contractors will need to know to get their financial reporting IIJA ready.
Tax and Reporting Provisions
Tax-related requirements under the IIJA govern a few key reporting areas:
- Cryptocurrency and digital assets reporting: One notable set of requirements from the IIJA applies to digital assets, such as cryptocurrencies and nonfungible tokens (NFTs). Digital assets valued at $10,000 or more will be treated as cash and taxed accordingly. The law also requires companies that receive digital currencies to report the Social Security Number or tax ID of the person or business sending the digital assets payment; failing to do so will be considered a felony. These provisions will apply to returns and statements required to be filed after Dec. 31, 2023.
- Early end to the Employee Retention Credit: The Employee Retention Credit (ERC), created by the Coronavirus Aid, Relief and Economic Security (CARES) Act in March 2020, was designed to provide employers with a refund each quarter as an incentive to encourage businesses to keep employees on their payroll. The credit was set to expire on Jan. 1, 2022, but the IIJA ended the credit a quarter early. Now, the credit only applies to wages paid before Oct. 1, 2021, unless the employer is a recovery startup business.
The early expiration of the ERC means some employers may have underpaid their employment taxes and, as a result, could face penalties and interest payments. Employers will need to determine how much tax they still owe and whether they received advance payments for fourth-quarter 2021 wages. They can avoid failure-to-pay penalties if they repay those amounts by the due date of their employment tax returns.
- Employer-sponsored retirement plans: To offset the cost of $550 billion in new infrastructure spending, the IIJA includes a “pension smoothing” provision that relaxes the minimum funding requirements for employer-sponsored retirement plans. The law extends this retirement funding relief period until 2034.
- Revival of chemical tax: The new law revives superfund excise taxes that expired in
1995 on the sale or use of 42 chemicals, as well as certain substances produced from
these chemicals. This tax ranges from 44 cents per ton on potassium hydroxide to $9.74
per ton on certain industrial chemicals, including benzene and butane.
It’s worth noting there are certain exceptions to the imposition of taxes on methane,
butane and nine other specified substances when used to produce motor, aviation, or
- Other tax provisions:
- Extends some tax filing deadlines for disaster relief
- Expands excise taxes on fuel, tires, and retail sales of heavy trucks and trailers
- Extends tax deadlines because of service in combat zones
- Allows private activity bonds for qualified broadband projects and carbon dioxide capture facilities
- Restores a tax exclusion for contributions to a regulated public utility for water or sewer construction
Get Your Share of IIJA-funded Jobs
A thorough assessment of your firm’s resources and needs will help ensure your company is well-positioned to take on – and win – IIJA-funded projects. Here are two tips:
- Assess your firm’s capital needs. Identify potential infrastructure projects, such as repairs, maintenance, and upgrades to roads, transit systems, and utilities.
- Assess your firm’s infrastructure needs. Make sure you have a streamlined bidding and project management system. Implement systems to manage, track and report on funds so you are compliant. See if there are processes such as permit applications you can move online. And check your cybersecurity systems. You’ll also need to identify staffing needs and develop a plan to attract and retain talent (hint: begin recruiting now).
Money for Tech Investments
The IIJA includes $100 million — $20 million annually spread out over five years — to pay for advanced digital construction management systems and technology. That means firms can get funding to invest in construction management tools and software to manage their accounting, bidding, estimating, and other tasks more efficiently.
Although the IIJA presents several new requirements for firms to follow, understanding these provisions can lead to opportunities for construction companies. If your firm needs assistance navigating IIJA requirements and getting its financial reporting in order, reach out to our team of construction industry experts.