New IDEA Act Blocks Tax Deduction for Unauthorized Worker Wages, Makes E-Verify Permanent

The New Illegal Deduction Elimination Act, or New IDEA Act, is a two-part bill that fundamentally changes how businesses handle employment verification and tax deductions. The core idea is simple: starting with tax years after December 31, 2024, businesses cannot deduct wages paid to employees who are not authorized to work in the U.S. from their gross income. This applies to all payments, whether cash or benefits.

The Tax Deduction Hammer and the E-Verify Safe Harbor

Think of this as a major financial disincentive. If a construction company pays a crew of unauthorized workers $100,000 in wages, they lose the ability to write off that $100,000 as a business expense, meaning their taxable income goes up significantly. This provision (Section 2) directly hits the bottom line for any employer who currently employs unauthorized workers and doesn't use the federal E-Verify system.

However, there’s a massive loophole, or rather, a safe harbor: E-Verify. If a business participates in the E-Verify program and correctly confirms an employee’s identity and work eligibility, they can still take the tax deduction. This creates a powerful incentive for employers—especially those in industries like hospitality, agriculture, and construction—to adopt E-Verify, even though the program remains voluntary.

Bigger Brother is Watching: Data Sharing Expands

To ensure compliance, the bill mandates a significant increase in data sharing between federal agencies (Section 2). The Commissioner of Social Security, the Secretary of Homeland Security, and the Treasury Secretary (IRS) must create a system to swap information that could identify unauthorized workers. This means the IRS can now share specific taxpayer data—like the identity of employers improperly claiming deductions and the workers who received those wages—with Social Security and Homeland Security for enforcement purposes. For the regular person, this is a major expansion of government surveillance capabilities, linking tax records directly to immigration enforcement efforts.

This section also gives the government a much longer leash for enforcement. If the IRS suspects a business improperly claimed the deduction for unauthorized wages, the government gets six years—instead of the usual shorter period—to assess and collect back taxes related to that violation. This extended audit window puts a long-term liability risk on employers who choose not to comply.

E-Verify Gets Permanent and Protected

Section 3 of the bill focuses on the E-Verify program itself, making it permanent rather than requiring periodic renewal. It remains voluntary, but the benefits of using it are significantly boosted. If an employer uses E-Verify and follows all the rules, they gain a “rebuttable presumption” that they haven't violated laws regarding unauthorized employment. Essentially, the government presumes you’re compliant, making it much harder for them to prove otherwise in court.

This section also allows employers to make a job offer conditional on the applicant passing the final E-Verify check. For hiring managers, this streamlines the process, allowing them to extend an offer without fully committing until the system confirms the worker is eligible. Employers also gain flexibility in how they use the system, being able to choose to apply E-Verify to all hiring nationwide, or just to specific states or locations.