New 25 Percent Tax on Outsourcing? How It Might Affect Accountants

On September 5, 2025, Sen. Bernie Moreno (R-OH) introduced the Halting International Relocation of Employment (HIRE) Act. The proposed legislation would impose a 25% excise tax on some payments that U.S. businesses make to foreign service providers when those services are used to help U.S. consumers. In addition to the excise tax, those payments would not be deductible for federal tax purposes. While some have described the proposal as a “tariff on outsourced services,” it functions as an excise tax within the Internal Revenue Code rather than a traditional customs duty on goods.

What the bill says in plain terms 

• 25% excise tax - Under the proposed legislation, any U.S. person who makes an “outsourcing payment” to a foreign person would be required to pay an excise tax equal to 25 percent of that payment.  
• No deduction allowed - These same outsourcing payments would not be deductible for income tax purposes, as outlined in proposed Internal Revenue Code Section 280I. 
• Effective date - As written, the excise tax and deduction denial would apply to payments made after December 31, 2025. This means that 2026 budgets, vendor agreements, and statements of work may need to be reviewed and adjusted in the near term. 

BDO has provided advisory guidance via its website, which highlights these provisions and explains how the bill could affect businesses that rely on offshore shared service centers, call centers, and professional service providers, including accounting and bookkeeping firms. 

How big is the cost impact? 

Initial analysis suggests that the combined effect of a 25 percent excise tax and the loss of a tax deduction could significantly increase after-tax costs. For instance, if a business pays $100,000 a year to outsource work and has to pay 21 percent in corporate taxes, some estimates say the effective cost will go up by about $46,000. That means that costs could go up by about 46 percent from what they are now. 

While this is a simplified model and actual outcomes will vary based on specific circumstances, it offers a useful starting point for scenario planning and budgeting discussions. 

Who could be most affected? 

The proposed tax would most directly affect U.S. firms and clients that rely on international teams and outsourced services. This includes:  

• Accounting and advisory firms with global teams supporting functions such as write-up work, accounts payable and receivable, payroll processing, tax preparation, and client accounting services. 
• Businesses with offshore shared service centers handling finance, IT, or customer operations, or those that rely heavily on third-party outsourcing. 
• Software and technology providers that use global, around-the-clock support models. 

Global coverage, especially from India-focused outlets, underscores concern in the Indian IT sector, given its scale and U.S. client concentration. While impact will vary, stakeholders there are treating the proposal as a real risk signal.  

What this is not 

The HIRE Act should not be confused with tariff measures that apply to imported goods. Unlike those, the HIRE Act addresses services and does so through changes to the tax code. It also exists separately from other recent policy efforts related to offshoring. 

For example, the Keep Call Centers in America Act of 2025, which was introduced on July 29, 2025, is one example. It suggests new rules for foreign call centers about what information they must share and how people can get to them. It also wants to tie some federal benefits to keeping businesses in the U.S. Both bills deal with offshoring, but they are different. The HIRE Act is more focused on taxing services that are outsourced. 

Where it stands now 

At this stage, the HIRE Act is still a legislative proposal and has not yet become law. It must go through the full legislative process, including committee review, passage by both chambers of Congress, and presidential approval. 

Coverage aimed at accounting professionals has reported that the bill is currently in committee. Although its future is still up in the air, the possible start date of January 1, 2026, has made many companies start looking at their exposure now. Lobbying and possible changes are expected, so the details could still change before the final version is passed. 

What to do this quarter 

1. 1. Map your exposure

Start by identifying all services your business receives from outside the United States. Create an inventory that includes each vendor, service location, type of service, contract value, and renewal date. Be sure to flag any automatic renewal provisions or clauses tied to inflation adjustments, as these may affect your ability to renegotiate terms. Advisory firms recommend completing this review before the end of the year to prepare for potential changes in 2026.

1. 2. Model three scenarios

Consider preparing for a range of possible outcomes by modeling the financial impact of three scenarios: 

• Low impact: The bill stalls in Congress or is significantly narrowed. 

• Moderate impact: A 25 percent excise tax is enacted but includes exemptions or carve-outs. 

• High impact: The full excise tax is enacted, along with the denial of deductibility and the introduction of strong anti-avoidance provisions. 

Run the numbers for your firm and for any clients that rely heavily on international services. Use the results to test the strength of current margins and pricing models. 

3. 3. Update contracts

As you look ahead to 2026, it is important to change the contract language to reflect the possibility of new tax obligations. Consider adding change-in-law provisions, tax gross-up clauses, and price-adjustment mechanisms that trigger if legislation like the HIRE Act is enacted. For multi-year agreements, shorter terms or reopener clauses can provide flexibility in a shifting policy environment.

Practitioners also point out that the draft includes elevated penalties for failure to pay the excise tax. To mitigate risk, firms should begin building internal processes to ensure compliance. 

4. 4. Change the mix of deliveries

Look into whether your firm or your clients can adopt a more diversified service delivery model. This could include moving certain functions to onshore or nearshore teams, or investing in automation to manage high-volume, rules-based tasks. Even if the law is changed or delayed, finding ways to improve efficiency and cut down on the need for offshore workers could have long-term benefits. 

4. 5. Prepare client communications

Clients may look to their accounting advisors for guidance on what the HIRE Act could mean for them. Consider drafting a brief client-facing summary that outlines the basics: the proposal is not final, a 2026 start is possible, and there are several options to consider such as renegotiating contracts, shifting delivery locations, or accelerating automation. You might also offer a rapid risk assessment or a customized 2026 sourcing plan.

Coverage aimed at accountants indicates that clients will anticipate their advisors to address this issue proactively.  

6. 6. Establish a compliance checklist

If the HIRE Act becomes law, firms will need to take several steps to stay compliant. These may include:

• Identifying payments that fall within the scope of the tax, using vendor codes, geography tags, and beneficial ownership data 

• Calculating the excise tax and adjusting for nondeductible amounts 

• Updating engagement letters and statements of work 

• Training accounts payable, procurement, and finance teams on new coding and reporting requirements 

Firms with offshore delivery models or global client bases may also see increased demand for advisory services related to compliance planning and execution. 

Talking points you can use with clients 

• “At this stage, the HIRE Act is only a proposal, but the current draft sets an effective date of January 1, 2026, for payments. So that there are no surprises, we are planning ahead to ensure you have options.” 

• “We have modeled multiple scenarios, including one where both the 25 percent excise tax and deduction denial apply. This allows us to help you select the best path forward based on your budget and service needs.” 

• “Our current recommendation combines selective onshoring with strategic automation. This approach is designed to maintain service quality while helping manage costs in a changing policy environment.” 

It’s important to prepare now 

This quarter presents an opportunity to assess exposure, model potential 2026 outcomes, update key contracts, and initiate conversations with clients about available options. 

Whether the HIRE Act is enacted in its current form or undergoes changes, it's important to have a clear and flexible plan. A strategy that combines onshore talent, nearshore partnerships, and intelligent automation can help maintain service quality, protect margins, and demonstrate leadership when clients need it most. 

This article was written with the assistance of AI and edited by a human.