The HIRE Act & Outsourcing Tax - Its Impact on Global Accounting Outsourcing: What Firms Need to Know

Accounting outsourcing faces unprecedented disruption with the proposed HIRE Act 2025, potentially adding a 25% tax to services performed outside the United States. This legislation threatens to fundamentally alter the cost-benefit equation that has made offshore accounting teams attractive for thousands of American businesses. 

The bill targets companies that rely on foreign contractors for essential financial services like bookkeeping, tax preparation, and payroll processing. If passed, businesses would not only pay the substantial tax but also lose the ability to deduct these expenses, essentially creating a double financial penalty. Furthermore, complex reporting requirements would add administrative burdens to already stretched accounting departments. 

This blog examines what the HIRE Act really means for your accounting outsourcing strategy, whether the cost advantage of offshore teams will survive, and how businesses should prepare for potential changes. Additionally, we'll explore alternative approaches, including automation and technology adoption, that might become more financially attractive if the legislation passes. 

What is the HIRE Act and Why it Matters 

The HIRE Act, formally titled "Halting International Relocation of Employment Act," represents a significant potential shift in U.S. tax policy targeting offshore service providers. Proposed by Ohio Senator Bernie Moreno in 2025, this legislation aims to discourage American businesses from sending jobs overseas while creating new funding for domestic workforce development. 

Overview of the 2025 proposal

The HIRE Act targets what it defines as "outsourcing payments" - any payment made in trade or business to a foreign person for services that benefit U.S. consumers. At its core, the bill seeks to reverse a decades-long trend of offshoring jobs, particularly in sectors like IT, finance, and accounting. 

Currently, the bill exists in early-stage form with limited co-sponsorship and has not yet become law. Nevertheless, its potential implications have sparked considerable debate across industries that rely heavily on global talent pools. 

The scope of services affected extends well beyond traditional IT outsourcing to include: 

Should it pass, the bill would create a "Domestic Workforce Fund" designed to support apprenticeships, retraining programs, and workforce development initiatives for American workers. 

Real-World Examples of Outsourcing Payments 

The bill’s scope extends far beyond traditional accounting or IT services. Under its definitions, outsourcing payments would include: 

By framing outsourcing so broadly, the HIRE Act blurs the line between global commerce and “outsourcing,” creating potential confusion and overreach. 

The Mixed Payments Rule

One of the most complex aspects involves the "Mixed Payments Rule," whereby only portions of contracts benefiting U.S. consumers trigger the tax. The formula (Total Payment × [U.S. Services ÷ All Services]) seems straightforward until applied to real-world scenarios. 

Consider an accounting team handling both U.S. and European clients - how exactly does one calculate the percentage serving U.S. consumers? The workload fluctuates daily, making precise allocation nearly impossible. Similarly, accounting software developed offshore but used globally creates attribution challenges. 

Even basic payment structures become problematic. For instance, if a U.S. firm pays $1,000,000 to an Indian accounting center handling 70% U.S. and 30% U.K. clients, only $700,000 qualifies as an outsourcing payment - requiring complex tracking mechanisms not currently standard in most accounting systems. 

For example: 

A U.S. company hires an Indian call center for $1,000,000, and 70% of calls are from U.S. customers → $700,000 is taxable. 

A $2,000,000 software contract used 40% in the U.S. and 60% in Europe → $800,000 is taxable. 

In theory, this sounds logical. In practice, it creates enormous compliance complexity, especially for digital services that are consumed globally and simultaneously. 

Key provisions: 25% Tax and Non-deductibility 

The HIRE Act contains two major financial provisions that would dramatically alter the economics of offshore service arrangements: 

First, it imposes a 25% excise tax on all qualifying outsourcing payments. This tax would be collected in addition to the base payment amount. 

Second, businesses would lose the ability to deduct these expenses from their taxable income - creating what critics call a "dual penalty" system. 

Need complete clarity in the Hire Act? Join our virtual event, “The Proposed HIRE Act & Outsourcing Tax - Its Impact on Global Accounting Outsourcing: What Firms Need to Know” 

Who is Considered a 'Foreign Person'?

Under the HIRE Act, a "foreign person" includes anyone who is not a U.S. person. Specifically, a U.S. person typically encompasses: 

The legislation contains a notable exception: corporations or partnerships organized under the laws of U.S. possessions (like Puerto Rico, Guam, U.S. Virgin Islands, American Samoa, or Northern Mariana Islands) are not considered "foreign persons" under this rule. 

Practical examples help illustrate this distinction: 

Who is Considered a 'Foreign Person'? 

While accounting firms are among the most exposed, the HIRE Act casts a wide net. Here is the list of 10 major industries with significant outsourcing exposure: 

The Global Workforce Reality

Consider these examples from Fortune 500 companies: 

Broader Implications for Global Outsourcing 

Beyond accounting departments, the HIRE Act poses far-reaching consequences for the global economy and international trade relationships. The ripple effects could fundamentally alter how countries engage in service exports and potentially spark a broader trade conflict. 

Effect on U.S. Competitiveness

Ironically, the legislation contradicts America's standing as a net exporter of services. Recent data shows the U.S. generated a $25.5 billion services surplus while facing a $103.9 billion goods deficit. Imposing barriers on service imports ultimately weakens America's bargaining position in advocating for open markets worldwide. 

Additionally, Fortune 500 companies and Big Tech firms employ roughly 80% of their workforce outside the U.S.; a reality the Act fails to address. The bill could force companies to restructure global operations, reducing their competitiveness against international rivals with access to global talent pools. 

Potential Retaliation from Other Countries 

Trade partners would likely respond with countermeasures if the HIRE Act becomes law. Countries receiving substantial U.S. outsourcing business might impose mirror taxes or restrictions on American service exports. This could trigger an escalating trade dispute affecting sectors where the U.S. currently maintains advantages. 

Meanwhile, digital services could become particular flashpoints due to their borderless nature. The EU, already exploring digital service taxes, would gain justification for accelerating similar policies targeting U.S. tech giants. 

Shift in Outsourcing Destinations

The legislation creates unexpected loopholes that savvy companies would quickly exploit. Notably, Puerto Rico and other U.S. territories are explicitly exempt from the "foreign person" definition. Consequently, businesses might establish shell operations in these locations to serve as intermediaries. 

Another approach involves U.S.-based companies re-domiciling overseas to escape domestic tax jurisdiction altogether. Even more concerning, global firms might simply contract directly with each other outside U.S. borders, excluding American intermediaries entirely. 

Risk of Informal or Illegal Workarounds

Historically, excessive regulation breeds creative circumvention. The HIRE Act could inadvertently increase cash payments, cryptocurrency transactions, and informal settlements designed to bypass reporting requirements. Some companies might misclassify business expenses as personal costs to avoid scrutiny. 

Others could shift to alternate currencies for international transactions, potentially weakening the dollar's position as the global reserve currency over time. As seen with previous attempts at regulating offshoring, people typically respond better to positive incentives than punitive measures. 

How the HIRE Act Changes Accounting Outsourcing

The financial services sector stands to face substantial disruption if the HIRE Act becomes law. Finance departments and accounting firms have long embraced global delivery models, with approximately 30-50% of back-office operations handled overseas. This established arrangement faces a potential overhaul that could fundamentally alter how accounting work gets done. 

Impact on payroll, bookkeeping, and tax prep 

Accounting functions rank among the most commonly outsourced business processes, especially for small and mid-sized enterprises. Finance and Banking/FinTech appears as the second most affected industry in outsourcing rankings, just behind IT. The most vulnerable accounting services include: 

For instance, when a U.S. accounting firm contracts with Philippine bookkeepers or Indian tax preparers, these arrangements would trigger both the 25% excise tax and the loss of deductibility. Consequently, firms would need to carefully evaluate which functions truly benefit from remaining offshore versus those that should be repatriated. 

Loss of Cost Advantage for Offshore Teams 

The combined effect is substantial. For a standard $100,000 outsourcing contract: 

This represents a complete restructuring of outsourcing economics rather than a minor adjustment. Since offshore teams typically reduce operational costs by 30-50% compared to U.S.-based alternatives, this tax structure could potentially eliminate much of the financial advantage of foreign outsourcing. 

Automation and Tech Adoption as Alternatives 

As offshore talent becomes less economically viable, technology solutions gain comparative appeal. The HIRE Act would likely accelerate several trends: 

First, expect greater investment in cloud-based accounting platforms and automation tools that reduce the need for human intervention altogether. Second, firms might redirect resources toward building domestic capabilities enhanced by technology rather than staffing offshore. 

Above all, robotic process automation (RPA) and AI-powered accounting tools could see accelerated adoption rates. Tasks previously sent overseas, such as data entry, transaction coding, and reconciliations, increasingly fall within the capabilities of modern software solutions. 

Furthermore, the compliance burden introduces additional costs beyond the tax itself. Under the Mixed Payments Rule, accounting firms serving both U.S. and international clients would need to calculate what percentage of services benefit U.S. consumers, an administrative challenge that further erodes the appeal of global delivery models. 

In reality, these shifts might happen gradually rather than immediately. The accounting industry would likely experiment with hybrid approaches, combining onshore oversight with selective offshore operations while steadily increasing automation where feasible. 

Will the HIRE Act actually Become Law?

Despite the dramatic headlines, history suggests the HIRE Act faces significant hurdles before becoming law. The proposed legislation joins a long line of similar bills that generated buzz but ultimately faded away. 

Historical Failure of Similar Bills

Legislative attempts to curb outsourcing have consistently stalled in Congress. From 2009's "Creating American Jobs and Ending Offshoring Act" to 2023's "Protecting American Jobs Act," each proposal followed a familiar pattern - initial media attention followed by quiet death in committee. The current HIRE Act remains an early-stage bill with limited co-sponsorship and faces the same uphill battle. 

Political and Economic Resistance

Major corporations with significant offshore operations wield substantial lobbying power. Given that Fortune 500 companies and tech giants maintain approximately 80% of their workforce outside the U.S., their opposition carries weight. Although politically appealing, the bill contradicts America's position as a net services exporter ($25.5 billion surplus), potentially damaging global trade relationships. 

Challenges in Enforcement and Clarity 

Implementation presents numerous practical hurdles. The "mixed payments rule" requires splitting costs between U.S. and global usage, an administrative nightmare, especially for digital services. Determining which portion of streaming content, software development, or customer support genuinely "benefits U.S. consumers" creates enforcement complexity without clear guidelines. 

Arguments from Free Market Advocates 

Free market proponents highlight several fundamental problems with the approach. First, the U.S. has historically championed open trade while dominating service exports. Second, the legislation ignores real-world talent shortages in technical fields. Finally, economists warn that people respond better to positive incentives than punitive measures, potentially driving businesses toward creative workarounds instead of compliance. 

Additional Reasons the HIRE Act Faces Major Obstacles 

Let’s take a step back. The U.S. isn’t just buying services - it’s also selling them. 

Potential Negative Consequences

If enacted, the HIRE Act could backfire spectacularly: 

Conclusion 

The proposed HIRE Act 2025 represents a potential paradigm shift for accounting outsourcing strategies. Through its dual-penalty system of a 25% excise tax and non-deductibility of expenses, the legislation could effectively erase much of the 30-50% cost advantage that makes offshore accounting teams financially attractive. Businesses currently relying on international talent for bookkeeping, tax preparation, and financial reporting face a critical decision point. 

Nevertheless, history suggests caution before dramatically restructuring operations. Similar bills have repeatedly failed to advance beyond committee stages, meeting resistance from both corporate interests and free market advocates. Additionally, the practical challenges of implementing complex provisions like the Mixed Payments Rule raise questions about enforcement feasibility. 

“There is no compliance burden on clients making payments to U.S. entities. Go ahead with your hiring and keep building your offshore teams.” 

Outsourcing remains an essential pillar of competitiveness - and the HIRE Act, while headline-worthy, is unlikely to change that. 

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About the Author

CA Nemin Vora

Nemin Vora, a CA and Tax Attorney, leads Client Relations at MYCPE ONE. With 7+ years of experience at Big 4 and top public accounting firms across America, he helps U.S. firms scale globally through remote talent, offshoring, and cloud operations. Known for his sharp tax insights and practical approach to firm growth, Nemin is a dynamic speaker. He breaks down complex topics such as leadership, AI, global staffing, and practice expansion into relatable lessons that professionals actually enjoy learning. Beyond the strategy decks, Nemin is a learner at heart, a stage actor, and a tech enthusiast.