HIRE Act 2025: US Moves to Tax Outsourcing, Indian IT at Risk?

After introducing several stringent measures to check immigration into the US, the authorities are contemplating to levy tax on outsourcing of work that could change the entire structure of hiring by the US firms.  

As proposed recently, a US lawmaker, senator Bernie Moreno has introduced a bill to protect the US workers from outsourcing by disincentivizing the US firms vying for cheap labour and hiring foreign workers. The bill is aimed at making offshoring costlier so that US firms start looking inwards and hire workers from within the US.

The Halting International Relocation of Employment Act (HIRE) is aimed at discouraging US firms from seeking lower salaries and employing foreign workers. The HIRE Act 2025 proposes top levy 25 per cent tax on outsourcing payments, which is the money paid to the foreign workers by the US firms.

The services by the foreign workers would benefit the consumers in the US. Additionally, the US firms or taxpayer will not be allowed to take the tax benefit out of the payment. HIRE Act says no deduction will be permitted for any outsourcing payments. All the American businesses involved in outsourcing their work offshore will fall under the purview of the Act. 

Impact of the Act

The term outsourcing payment means any premium, feel, royalty, service charge or other payment made in the course of a trade or business, to a foreign person, and with respect to labour or services the benefit of which is directed, directly or indirectly, to consumers located in the US.

Several BPOs, consulting firms and IT companies providing services to American firms could be impacted by the HIRE Act. Several Indian IT firms could also be affected. If the bill is passed, the amendments to payments will begin for payments made after Dec. 31, 2025.

HIRE Act 2023

The HIRE Act 2025 is completely different from the High-skilled Immigration Reform for Employment (HIRE) Act introduced by Congressman Rajahmundry Krishnamoorthi in 2023. Krishnamoorthi’s Act aimed at doubling the H-1B visas from the annual 65,000 to 1,30,000, to allow US firms draw the best talent into the country.

The Act also aimed at reducing the skill gap by funding to strengthen the US elementary and secondary education, apart from science, technology, engineering and math (STEM) educational programs.