How the Proposed HIRE Act Could Impact Business Owners and Taxpayers in Maryland, Virginia, and Washington, D.C.

As a business and tax law firm serving clients throughout the DMV region, Thienel Law tracks legislation that may impact how our clients operate or structure their businesses. One such legislative proposal now gaining attention is Senator Bernie Moreno's (R-OH) Halting International Relocation of Employment (HIRE) Act.

This bill aims to discourage U.S. corporations from outsourcing labor and services outside the country when those services are connected to goods ultimately consumed here at home. While only a proposal for now, the HIRE Act — if passed — could reshape key considerations for tax planning, operational strategy, and long-term business decisions.

Here's what you need to know.

Key Takeaways

• The HIRE Act is intended to discourage offshoring of jobs by targeting tax breaks and increasing penalties related to outsourced labor for U.S. consumption.

• If enacted, the law could increase operating costs and tax exposure for companies that rely heavily on foreign vendors, manufacturers, or service providers.

• LLCs, S-corporations, and partnerships with outsourced operations may need to reevaluate supply chains and vendor contracts under this bill.

• Individual taxpayers and high-net-worth business owners could face increased complexity in cross-border reporting or restructuring under the new framework.

• Business owners in Maryland, Virginia, and D.C. should prepare now for potential changes by reviewing business models, tax structures, and compliance strategies.

Why Business Owners in the DMV Region Should Pay Attention

The D.C. metropolitan area is home to entrepreneurs, contractors, and consultants serving domestic and international markets. From tech startups in Arlington to family-owned manufacturers in Maryland, many of our clients at Thienel Law use offshore labor, software development teams, or logistics providers as part of a lean operating strategy.

The HIRE Act could place new taxes or penalties on businesses outsourcing services or manufacturing abroad, especially if the end product or service is ultimately delivered to U.S. consumers. This means DMV-based businesses must evaluate — now — whether their offshore operations could trigger tax consequences later.

Even businesses with U.S.-based operations but global partners may be affected if elements of production or support fall within the law's scope.

Breaking Down the HIRE Act Proposal

At its core, the HIRE Act seeks to reduce the financial incentive for offshoring. While the full language of the bill has not yet been released, existing summaries suggest it would operate by:

1. Denying Deductions for Outsourced Services or Components

This mirrors earlier efforts in Congress where companies couldn't deduct expenses related to moving operations overseas. For example, if a Maryland-based S-Corp hires a software development team in Eastern Europe to build components for a U.S.-based app, these payments may no longer be deductible under the proposed law.

2. Imposing Tax Penalties on U.S. Consumption of Outsourced Goods or Services

Suppose a D.C.-based LLC operates a specialty e-commerce business with products manufactured abroad and imported for local sale. The HIRE Act could impose additional taxes or eliminate deductions related to these items, especially if there are substitute domestic options.

3. Creates a Domestic Workforce Fund

It is funded by revenues collected from the excise tax and penalties. This fund supports:

• Department of Labor workforce development programs

• Apprenticeships and industry partnerships

• Grants to states for workforce development

These are indirect incentives through workforce development funding.

4. Enhancing IRS Oversight on Offshoring Practices

The bill could signal increased scrutiny by the IRS on how companies structure contracts with overseas vendors and whether those practices result in unfair tax advantages.

While precise details are still developing, business owners should anticipate that once the Act is finalized, compliance will not be optional — and restructuring may be needed quickly.

Potential Impact on LLCs, Partnerships, and S-Corps

For small to mid-sized businesses operating under pass-through structures, such as LLCs and S-Corps, the HIRE Act may significantly affect taxable income and business strategy.

• A small tech startup in Northern Virginia using offshore coders may face expense disallowance, raising its taxable income and reducing available cash for reinvestment.

• A family-run LLC in Maryland that contracts with overseas artisans to produce decorative goods for resale might need to reconsider import logistics, cost assumptions, and market pricing.

• A professional services firm in D.C. with outsourced administrative support (e.g., billing or customer service located abroad) could lose deductions for those costs, altering everything from hiring plans to how they price client services.

Even domestic businesses that use freelancers through third-party platforms with international labor pools — a growing trend among consultants — may be affected, depending on how enforcement rules are written.

Considerations for Estate Planning and High-Net-Worth Individuals

If you're a high-net-worth owner with cross-border holdings or interests in businesses that rely on offshore operations, the HIRE Act adds another layer of complexity to estate or succession planning.

Structuring gifts or transfers of business interests may have different implications if that business is taxed more heavily due to outsourcing. Cash flow forecasts, discounted valuations, and passive income distribution could all shift under the new tax burdens.

Moreover, trusts or estate vehicles that hold interests in companies facing penalties under the HIRE Act will need careful review for tax exposure — particularly when planning distributions or sell-offs.

Strategic and Compliance Considerations: Risk Management Takeaways

From a legal and operational standpoint, all businesses — especially those in scale-up mode or expansion — should take a proactive approach to risk management. Here's what we recommend:

• Review Supply Chains and Vendor Contracts. Identify any part of your operations involving foreign labor, manufacturing, or software development. Carefully examine whether those services contribute to consumer-facing end products.

• Evaluate Costs vs. Legal Exposure. The math on outsourced savings may shift. Are you paying less now only to pay more in taxes later?

• Stay Agile on Hiring Strategies. If the HIRE Act rewards domestic hiring with credits or deductions, consider whether allocating certain roles to U.S. employees might make more financial sense — even if wages are higher.

• Plan for Audit Readiness. If your books aren't crystal-clear about where services are rendered or goods are made, it may open you up to audit risk once the IRS starts enforcing new rules.

• Work With a Tax and Business Advisor. Ultimately, the implications of the law will not be uniform. What's a minor adjustment for one S-Corp could be a central issue for another. A tailored legal solution is key.

Example: A DMV-Based Startup with a Hybrid Workforce

Consider a fast-growing SaaS company in Alexandria that's structured as an LLC taxed as an S-Corp. Its back-end development team is in Germany, while marketing and client onboarding are handled locally.

If this company's services are used entirely by U.S.-based clients and the IRS deems the offshore development to be a taxable form of outsourcing, two things could happen:

• The expense for paying the German developers may no longer be deductible.

• The company may also face an additional tax layer tied to the value of its offshore-derived services consumed domestically.

This startup would either need to absorb a higher tax liability or reconsider its operations — possibly hiring developers stateside, realigning its pricing, or challenging the IRS's interpretation.

Unique Insight: Policy vs. Practicality

From a legal perspective, the HIRE Act presents both a policy shift and a practical dilemma. It underscores Congress's broader movement toward "onshoring" — bringing jobs and services back to the U.S. — but does so by controlling how much companies can legally deduct.

However, many small businesses and startups outsource not because they want to sidestep taxes, but because it allows them to compete. For DMV-area businesses that serve national clients from a high-cost region like ours, going global with a portion of services can be essential for survival.

This raises important constitutional and practical questions about how far Congress can — or should — go in policing business decisions through the tax code.

That said, once passed, laws become enforceable reality — and at Thienel Law, our role is to help clients adapt intelligently.

Conclusion: What Should You Do Now?

While the HIRE Act has not yet become law, the direction is clear: tax policy is increasingly targeting offshore operations and foreign service providers tied to U.S. consumption.

Business owners and professionals in Maryland, Virginia, and D.C. should use this time to:

• Inventory foreign vendors, manufacturers, or contractors in your current business model.

• Consider alternative sourcing or workforce strategies.

• Review tax structures for potential exposure under these new rules.

• Update estate or succession plans impacted by potential shifts in valuation or cash flow.

If you're unsure how this applies to your business or personal situation, we're here to help. Schedule a consultation with Steve Thienel to get advice tailored to your goals.

Let's build a strategy that protects your interests — before legislative changes lock in.