When Washington shuts down: what a funding lapse means for your taxes, your visa, your loans and your federal contracts

For a European, the idea that a national government can simply run out of legal authority to spend money sounds like a constitutional crisis. In the US it is a recurring feature of the budget calendar. When Congress has not passed appropriations by the start of the federal fiscal year, which by law begins on 1 October, or by the end of a stopgap, the parts of government without funding must stop most work. Between October 2025 and April 2026 that happened three times.

The timeline of 2025 and 2026

The public laws on GovInfo tell the story precisely:

The 43 days of autumn 2025 were eight days longer than the 35-day shutdown of 2018 to 2019. As we write, the government is funded. The next date to watch is 11 December 2026.

How a shutdown works in law

The mechanism is the Antideficiency Act. Federal officers may not make or authorize an obligation exceeding the money available in an appropriation, and may not commit the government to a contract or payment before an appropriation is made. They also may not accept voluntary services, except in emergencies involving the safety of human life or the protection of property.

From those rules each agency's contingency plan follows. Staff fall into three groups:

• Excepted employees keep working because their work protects life or property or is otherwise authorized by law.
• Employees paid from other sources keep working: fee-funded programs and multi-year money appropriated earlier.
• Everyone else is furloughed.

Federal law now guarantees that furloughed and excepted federal employees are paid for the lapse period at the earliest date possible after it ends. No such guarantee exists for private contractors. That is the asymmetry a business owner needs to understand: the federal workforce is made whole afterwards, the private businesses around it are not.

Which group an office falls into depends on its funding, not its importance. That explains outcomes that look odd from outside, such as immigration benefit applications continuing while the online employment verification system goes dark.

Taxes: your deadlines do not move

The single most important rule for a business owner: a shutdown does not suspend tax deadlines. On 1 October 2025 the IRS told taxpayers to keep meeting their filing and payment obligations, and it said the same on 2 February 2026 during the short lapse that fell into the filing season.

The IRS has also kept much of its operation running, because it had multi-year money. On 1 October 2025 it announced it would continue normal operations through 7 October using funding from 2022 legislation, with offices on regular hours and online tools available. In February 2026 it continued until further notice on the same basis.

What a lapse does slow down is everything that needs a person at the IRS: correspondence, examinations, replies to notices, processing of paper returns. A foreign-owned company that files on paper, for example a Form 5472 with its pro forma Form 1120, or that is waiting for an EIN by fax or post, should expect the backlog to grow and to take weeks to clear after funding returns.

Our practical rules:

• Pay estimated taxes and extension payments on time, electronically.
• File electronically wherever the form allows it.
• Keep proof of timely mailing for anything that must go on paper.
• Do not read silence as acceptance. An IRS letter that arrives late still has a deadline, and our page on what to do when you receive an IRS notice applies unchanged.

Visas and employing foreign staff

Immigration is where a shutdown affects European business owners most, and it does so unevenly.

USCIS

USCIS is funded mostly by application fees. In its guidance for the lapse that began in December 2018 it stated that a lapse does not affect its fee-funded activities, that offices stay open and that applicants should attend interviews and appointments as scheduled. Programmes that depend on appropriated money are affected; USCIS has named E-Verify, the Conrad 30 waiver program for J-1 doctors, EB-5 regional center designations and the special immigrant category for non-minister religious workers.

E-Verify

E-Verify, the online system that confirms a new hire's work authorization, has gone dark in past lapses; USCIS told Congress that during the 35-day shutdown of 2018 to 2019 it suspended operations and was unavailable to employers. Form I-9 itself does not pause. The employee completes Section 1 at the time of hire and the employer completes Section 2 within three business days, shutdown or not. After past lapses, days on which E-Verify was unavailable were not counted against the deadlines for creating cases.

Labor certification

The Department of Labor's Office of Foreign Labor Certification, which issues prevailing wage determinations and the PERM labor certifications used for many employment-based green cards, ceased all processing on 1 October 2025 and suspended its FLAG filing system. FLAG was restored on 31 October 2025. Deadlines that fell between 1 October and 2 November were automatically extended by 33 calendar days, and mailed filings were treated as filed on their postmark date.

For a European founder on an E-2 investor visa or planning a green card through an employer, the lesson is timing. Start filings early enough that a month's stoppage does not push a start date, a status expiry or a recruitment window over the edge.

SBA loans and federal contracts

For companies that borrow with an SBA guarantee or sell to the federal government, a shutdown is a cash flow event.

SBA lending. During the 2025 lapse, approvals in the SBA's flagship 7(a) and 504 guaranteed loan programs stopped. The SBA estimated afterwards that it could not deliver $5.3 billion in guaranteed loans to 10,000 small businesses during the 43 days. A bank loan that depends on an SBA guarantee simply waits.

Federal contracts. Agencies without appropriations cannot place new obligations, so new awards and options wait, and contracting officers can halt work through stop-work orders. The standard federal stop-work clause allows a stoppage of up to 90 days and requires an equitable adjustment of schedule or price afterwards, if the contractor asserts it within 30 days after the stoppage ends. The same SBA release estimated that federal contractors lost at least $12 billion in revenue from federal projects in the 2025 shutdown. Unlike federal employees, contractors have no statutory right to be paid for the idle weeks.

What we tell contracting clients:

1. Read the stop-work and suspension clauses in your contracts before October.
2. Document every cost incurred because of a stop-work order, and claim the adjustment in time.
3. Do not keep working on unfunded tasks without written direction from the contracting officer.
4. Keep a cash reserve or a commercial credit line sized for a lapse of six to eight weeks.

The quieter effects

Some consequences only show up later.

• Missing data. Federal statistics stop during a lapse. After the 2025 shutdown, the Labor Department delayed a December 2025 wage notice because the Bureau of Labor Statistics data it depends on had not yet been published. Businesses that index contracts or wages to official figures should know which series they rely on.
• Slower registrations. Any federal approval handled by staff paid from a lapsed appropriation can slip by the length of the lapse plus the backlog that builds behind it.
• Deadlines. Deadlines in statutes and regulations keep running unless someone extends them. The automatic extension the Labor Department granted in 2025 was a deliberate decision by that agency, not a general rule.

For the full map of federal agencies a US company deals with, see our guide to federal and state business regulations.

A shutdown plan for a foreign-owned company

Most of our clients never notice a shutdown, because the federal government's core money machine, tax collection, keeps working. Those who do notice it have something pending. Before every funding deadline, and the next one is 11 December 2026, we go through four questions with them:

The American budget process is noisy, and every autumn brings headlines. Underneath them the essentials hold: taxes stay due, fee-funded immigration keeps running, and every lapse has ended with the government reopening and federal staff paid afterwards, as the law now requires. A business that knows which of its matters depend on appropriated money can plan around the noise. Our page on how the IRS works is a good companion for the tax side.