The H-1B Tax Would Price America Out of the Global Race for Talent
Policy Brief

Why the H-1B Tax Is a Bad Policy That Would Hurt the U.S. Workforce and Economy

The proposed H-1B tax is a bad policy that lacks substantive economic and legal justification. If successful, it would direct billions more each year to agencies like ICE and CBP, which are sitting on tens of billions of unspent taxpayer dollars, and which Americans agree are already overfunded. It would also impose significant fiscal costs on U.S. employers, particularly small businesses, and shrink the skilled workforce. This could cause employers to move jobs overseas, replace them with AI and automation, or leave them completely unfilled and undone.

The H-1B Tax Would Price Global Talent Out of Reach, Particularly for Small Businesses

The H-1B tax would likely reduce American business’s willingness to sponsor employees for visas. The tax would effectively prevent many employers, particularly startups and small businesses, from retaining critical workers. Even large corporations could shift jobs and work to other countries to avoid having to pay this new and prohibitive cost, weakening our global competitiveness.

One of the H-1B program's primary functions is talent retention. In FY 2024, 54% of approved H-1B petitions for initial employment were for people already in the U.S., and nearly three-quarters of those had previously held student status at U.S. colleges and universities. These are not workers being recruited from overseas; they are people America educated, at the point where they decide whether to build a career here or somewhere else. And the most recent USCIS data show what is at stake in that decision: 71% of people approved for initial H-1B employment in FY 2025 held a master's, doctorate, or professional degree.

If employers cannot afford to hire these workers in the U.S., they will take their talents elsewhere. More than likely, the jobs won’t go to anyone here. It's a double loss: the person and the work.

Companies have built their budgets and business models on a long-standing system. A sudden change of this magnitude would be severely disruptive. A recent survey of 16 regular H-1B employers similarly found that, under a policy like this, 15 out of 16 would reduce H-1B filings. The median expected reduction was 92.5%, four out of five positions would go unfilled. These reliance interests and the consequences of a reduction in H-1B use are not adequately addressed in the rule’s cost-benefit analysis.

H-1B filings are already fairly expensive. Required filing fees run about $2,225 for companies with 25 or fewer employees and about $3,595 for larger companies, plus an additional $2,965 for premium processing to get their paperwork reviewed more quickly. The most active H-1B employers file hundreds, even thousands, of initial H-1B petitions each year. The costs add up quickly.

Smaller employers and startups the hardest and priced out of hiring the talent they need. Many smaller employers sponsor only one or a few H-1Bs at a time, but with each costing more than $100,000 (assuming they’re not also subject to the $100,000 consular processing fee), the price becomes prohibitive. DHS estimates that the cost would exceed 1% of annual revenue for more than three-quarters of small filers. DHS dismisses these concerns in two sentences, saying that,“Exempting small entities or discounting fees creates a sizable perverse incentive for employers to avoid the fee. This would lead to shortfall in revenue realization and would fail to meaningfully improve program integrity.”

The H-1B tax Would Leverage U.S. Companies to Send Billions More to ICE and CBP

If H-1B filings remained at their maximum level of 85,000 per year (which experts assert is highly unlikely, more below), DHS estimates that the tax would generate approximately $8.8 billion in revenue annually, more than USCIS’s entire annual budget in recent years.

$3 billion would go to USCIS, the agency that adjudicates H-1B petitions. However, the money would not necessarily go towards adjudicating H-1B petitions or supporting the H-1B program, employers, or visa holders. There is no mention of addressing ever-extending processing times or ensuring full usage of available green card numbers for H-1B holders in backlogs.

Many employers also already $2,965 for premium processing, which today pays the salaries of the staff who review their petitions. This rule shifts that payroll onto the new tax (roughly $13,840 per petition) and reallocates the premium processing money for vetting and site visits instead. Employers would be paying a second time for the same adjudicators, Other earmarks for the USCIS tax revenue include building new facilities, pay increases, and launching a “Voter Verification System.”

The rest of the money would go to various other Departments and agencies for unrelated activities, including:

• $1 billion to Immigration and Customs Enforcement (ICE)
• $76 million to Customs and Border Protection (CBP)
• $3 billion to the Executive Office for Immigration Review (EOIR)
• $484 million to the Department of State (DOS)
• $1.2 billion to the Department of Labor (DOL)

The Eye-Popping Price Tag Lacks Substantive Economic and Legal Justifications

The extraordinarily high amount for the tax is not based on the cost of adjudicating H-1B visas or administering the program; the amount is actually based on how much money the administration would like to raise for these different projects. DHS derived the $103,265 tax by making the wishlist of projects which all together cost about $8.8 billion, then divided that amount by 85,000, the maximum number of new cap-subject H-1Bs that can be issued each year. Because the exorbitant charge is being used solely as a “dedicated revenue mechanism,” it functions more as a tax than a fee.

DHS claims that the $8.8 billion in revenue would help recover costs for departments and agencies that “have statutory responsibilities in administering the lawful immigration system.” The list of such costs includes building new facilities like a National Records Center, a “Voter Verification System,” vetting non-H-1B immigrants, funding refugee resettlement programs, and hiring thousands of immigration judges and legal staff.

This is a real legal issue because Congress only authorized USCIS to charge fees that cover the cost of the services it provides—it did not authorize USCIS to fund other agencies. Yet two-thirds of the revenue from this fee would be directed for programs and projects unrelated to adjudication, most of them outside of USCIS, and would be in addition to the already established fees for H-1B petitions that are established to recover the cost of adjudication and to fund other programs, like fraud, worker retraining, and the asylum program. Moreover, as the NPRM states, DHS has “generally exercised this authority by focusing fee recovery on costs incurred by USCIS, and we have not included costs borne by other departments and agencies.”

We also raise challenges to DHS’s assumptions about the impact of the tax on H-1B demand. Real world examples validate that this enormous change would likely drive down H-1B filings. DHS’s own analysis on the impact of the $100,000 charge for consular-processed H-1Bs found that it led to a “short-term shock decline of more than 90% in consular H-1B receipts.” Court filings showed that only 70 companies had paid the fee. The employer survey cited above likewise found that most employers would reduce filings and four out of five positions would go unfilled in the U.S. The proposed rule would represent an unprecedented 30x cost increase, a change for which there is no other relevant historical comparison.

Finally, it is worth noting that the administration is simultaneously advancing multiple regulatory proposals that impact the H-1B program, including changes to prevailing wage determinations and eligibility for cap-exemption. The NPRM fails to adequately explain how the justification for and impact of this rule would change if and when those other policy changes go into effect.