Breaking Down the HIRE Act of 2025: What Businesses Need to Know
On September 25, 2025, Senator Bernie Moreno (R-OH) introduced the Halting International Relocation of Employment Act (HIRE Act). The HIRE Act aims to incentivize businesses to expand hiring and boost domestic workforce retention. It includes a range of tax credits and employment support reforms. The HIRE Act’s international tax aspects would be a major policy shift, targeting cross-border service arrangements and multinational employment strategies.
Excise Tax on Foreign Service Payments Under the HIRE Act
The HIRE Act’s centerpiece is a new 25% excise tax on “outsourcing payments” made by U.S. businesses to foreign persons for labor or services benefiting U.S. consumers, along with the denial of tax deductions for such payments and the excise tax.
- The excise tax applies broadly to “outsourcing payments,” which are defined as fees, premiums, royalties and service charges paid in the course of conducting a U.S. trade or business to a foreign person with respect to labor or services that benefits, either directly or indirectly, U.S. consumers. In this instance, a “foreign person” is defined to mean any person who is not a U.S. person, other than a corporation or partnership organized under the laws of a U.S. possession. There are no exceptions for payments to foreign affiliates, such as shared service center subsidiaries located offshore.
- “Mixed payments” are those made for services that benefit both U.S. and non-U.S. consumers. In this case, the excise tax would be applied on a pro rata basis, applying only to the portion of the payment that is for labor or services “directed to consumers in the United States.” It is unclear how the allocation method will be applied or how to determine whether labor or services are directed to U.S. consumers versus all consumers, non-consumers or internal business functions.
The HIRE Act’s Disallowance of Tax Deductions
- The excise tax on outsourcing payments is nondeductible.
- The outsourcing payments themselves are also nondeductible for U.S. federal income tax purposes, thereby increasing the effective cost of outsourcing payments by both the excise tax and the denied deduction.
- The disallowance of tax deductions applies even if the foreign service provider is a related party or a controlled foreign corporation, and anti-avoidance rules are expected to curtail the use of intermediaries or transfer pricing schemes to bypass the law.
HIRE Act Compliance, Reporting and Enforcement
- While the specific reporting requirements of the HIRE Act likely will be developed through subsequent regulations, should the HIRE Act pass, U.S. companies generally may be subject to detailed reporting requirements regarding the type, amount and timing of outsourcing payments.
- Penalties for noncompliance may range from 0.5% to 50% per month, with no cap.
Establishment of the Domestic Workforce Fund
- The Domestic Workforce Fund will collect the excise tax and associated penalties, and such revenue shall be directed to spending on workforce development, retention programs, apprenticeships and partnerships “to expand domestic employment in sectors impacted by outsourcing.”
The HIRE Act’s Vast Implications for Companies with International Operations and Service Centers
If enacted, the HIRE Act is expected to dramatically increase the cost of cross-border service arrangements for multinationals with shared service centers, IT contracts, customer service support functions or any offshored operations that could be construed as being directed towards U.S. consumers.
In light of these increased costs, existing transfer pricing policies and related-party contract agreements may need to be significantly revised to ensure both compliance and cost-effectiveness under the new law.
Finally, multinational firms based in the U.S. may need to shift service delivery models, consider reshoring jobs or restructure global supply chains in response to the increased tax burden and compliance complexity.
Remaining Questions Surrounding the HIRE Act
A key factor in how the HIRE Act will ultimately play out is how the government determines which benefits will be directed at U.S. consumers. For “mixed payments,” it will be crucial to define the mechanics for apportioning the tax so that it does not apply to labor or services directed to non-U.S. consumers or to internal operations.
It is expected that there will be carve-outs for specific industries or critical services. However, at this point, the HIRE Act does not contain any exemptions.
Lastly, anti-avoidance rules should be narrowly defined so that multinational enterprises are permitted to structure cross-border business operations without unintentionally violating the spirit or letter of the law.