Congress Fails to Pass a Funding Bill, Shuts Down the Federal Government

The federal government shut down as of 12:01 a.m. Oct. 1 after the Senate failed to pass a short-term spending bill. There were two proposals — one from Republicans that did not contain any healthcare provisions and one from Democrats that did contain provisions to protect health care coverage for Americans — and the Senate could not agree on either.

The House of Representatives previously had passed a bill along party lines on Sept. 19 to fund the government through Nov. 21, but the Senate rejected that version almost entirely along party lines.

Currently, all non-essential federal government employees have been furloughed, which is about 737,000 people. The president also threatened to terminate thousands of jobs permanently if a shutdown occurred. The Senate will continue to meet in an effort to extend funding for the government to end the shutdown.

Since signing a continuing resolution In March 2025 to extend funding for the government until the end of its fiscal year, Congress has managed to accomplish the following:

• The House passed several appropriation bills, but they were never reconciled with versions from the Senate.
• The Senate passed a mini-bus bill that included Military Construction, Agriculture-FDA, and the Legislative Branch.

Congress has also taken a two-week recess in April, taken a long August recess, taken days off for Memorial Day and Labor Day, and finally the House designated a district work period from Sept. 29 to Oct. 6.

There are 12 appropriation bills that must be negotiated, passed by both chambers of Congress, and then signed by the president to fund government operations. They bills are for Transportation, Housing and Urban Development; Agriculture, Rural Development, Food and Drug Administration; Commerce, Justice, Science; Defense; Energy and Water Development; Financial Services and General Government; Homeland Security; Interior, Environment; Labor, Health and Human Services, Education; Legislative Branch; Military Construction, Veterans Affairs; State, Foreign Operations.

This marks the 14^th time since 1981 that the government has been partially or fully shut down, including five in the past decade.

A shut down is costly. The Congressional Budget Office estimated the 2018-19 shutdown hit the Gross Domestic Product (GDP) to the tune of an $11 billion reduction.¹ Long shutdowns also hurt private-sector investment because, among other impacts, access to federal loans is disrupted. As for taxpayers, $4 billion of their money was wasted during the three shutdowns since 2013.²

Businesses and their employees should understand more about what a government shutdown is, how it might impact them, and then plan accordingly.

What Is a Government Shutdown?

A government shutdown means the government can’t spend money that requires annual appropriations, which affects its ability to pay its employees and keep facilities and buildings open where those employees work. Some employees are considered essential such as air traffic controllers and would have to work without pay during the shutdown.

Federal employees are entitled to backpay for as long as appropriations are lapsed under the Government Employee Fair Treatment Act of 2019. It should be noted that employees of federal contractors are not guaranteed backpay under the 2019 law, but a company can decide if they want to provide backpay to these employees.

What Agencies and Services Would Be Affected by a Shutdown?

Here are some closures or partial closures that could impact your business based on previous shutdowns:

• Small Business Administration (SBA): Most of the SBA’s loan approval and processing (e.g., microloans, working capital loans, etc.) would be unavailable during a shutdown.
• Internal Revenue Service (IRS): All tax payments and filed returns will continue to be accepted as the IRS hits the peak of tax filing season, but refunds might arrive after a shutdown ends. The exception to that is e-filed, error-free returns with direct deposit refunds.
  • Expect delays in correspondence from the IRS.
  • All IRS toll-free hotlines will be closed, impacting the ability to get a client EIN Verification via this method.
• E-Verify: The federal internet-based employment verification system will be unavailable for employers to complete the process, but businesses are still required to complete the Form I-9 for new hires. If your business is in a state that mandates the use of E-Verify, you should check with your state’s website for information, including on alternative methods for employee verification.
  • Delays should be expected with onboarding new employees.

On-site audits and food/environmental inspections might be put on hold by agencies such as OSHA, the Department of Labor, the National Labor Relations Board, and others.

Medicare and Medicaid are federal programs that are not subject to annual appropriations, but a shutdown could cause a disruption for participants. For example, there might be a delay in getting Medicare replacement cards. Access to call centers and federal healthcare marketplace resources could be lost, as well.

How Could Businesses Be Impacted by a Shutdown?

There are tangential impacts to consider such as the closing of national parks and national museums (e.g., Adirondack and Yellowstone, the Smithsonian) during a shutdown that could affect businesses that rely on the patronage of federal employees or tourists. This adds to the tourism challenges currently affecting businesses. Washington, D.C., has been hurt by a projected 5.1% drop in international travel in 2025 that comes on the heels of a 2024 that saw record numbers of visitors (27.2 million) that spent $11.4 billion. In Nevada, which is a launching pad to numerous national parks, Las Vegas has already seen a 7.3% drop in tourism the first half of 2025.

States might have to suspend their unemployment programs and possibly find alternative sources of funding because federal unemployment funding to states will cease during a shutdown.

Although most shutdowns in U.S. history have not influenced the stock market because their durations were brief, a shutdown of significant length could shift the stock market. This would impact employee retirement plans (401k), as well as delay federal reports on job growth, housing starts, and other indicators that investors rely on to make decisions..

What Won’t Be Impacted by a Government Shutdown?

Based on previous shutdowns, the list is small of federal agencies and processes that continue to function through a shutdown.

• Social Security checks will go out to recipients. However,
  • Social Security Administration will not issue Social Security cards.
  • The Employee Services toll-free hotline will not be available.
• Medicare open enrollment should not be impacted.
• Medicaid enrollment is handled through individual states.
• The U.S. Postal Service may continue to deliver the mail.
• Members of Congress still get paid.

What’s Next?

Accounting professionals and financial advisors should have conversations with their impacted clients to gain a better understanding of each client’s financial situation and be prepared to offer any resources that might help.

Paychex continues to monitor the developments in Congress and will provide updates as the legislative branch works toward producing a bill that funds the government. We understand the challenges facing employers and offer educational resources and a variety of funding options to consider that might fit your business needs.

¹ Effect of Partial Shutdown Ending January 2019, Congressional Budget Office

² The True Cost of Government Shutdowns, U.S. Senate report, 2019