US May Tax International Students On OPT: Experts Warn Of Global Repercussions

Mumbai: Newly proposed legislation in the US Senate would dramatically change the way international students employed through the Optional Practical Training (OPT) program are taxed, a shift that promises to reduce their take-home pay and increase the expense of hiring them for companies.

The OPT Fair Tax Act, S. 2940, which Senator Tom Cotton introduced in September 2025, would eliminate payroll tax exemptions currently available to students on F-1 visas who are employed via the OPT program. The proposal has been referred to the Senate Committee on Finance for review. If passed, the measure would require OPT participants to pay Federal Insurance Contributions Act (FICA) taxes, the deductions that fund Social Security and Medicare are similar to U.S. citizens and permanent residents. Employers would also be responsible for contributing their share of these taxes, increasing overall employment costs.

Existing Law

Under existing law, F-1 visa students on OPT are exempt from paying FICA taxes for their first five calendar years in the United States. The IRS classifies them as "non-resident aliens," who are not required to pay into Social Security and Medicare as long as they are engaging in authorised activities like OPT.

Presently, FICA taxes are 15.3% of wages, equally shared between the employer and employee at 7.65% each. The breakdown provides for 6.2% for Social Security and 1.45% for Medicare. The exemption, designed originally to support foreign students, acknowledges they are temporary residents who generally cannot claim the longer-term benefit of these programs. For years, this policy has made OPT an attractive option for both students and employers.

Future

If the OPT Fair Tax Act becomes law, these exemptions would be removed. Both students and their employers would have to pay their share of FICA taxes, resulting in lower take-home pay and higher hiring costs. The change could be particularly challenging for recent graduates already managing educational loans and adjusting to life in a new country. It would also make the OPT program, one of the main post-study work routes for international graduates, financially less appealing.

The OPT program, managed by the U.S. Citizenship and Immigration Services (USCIS), allows international students to gain practical work experience related to their field of study for up to 12 months after graduation. For those in STEM disciplines, the authorisation can be extended for an additional 24 months.

Lawyers warn of wider implications

Immigration lawyer Allison Kranz said the proposed bill could substantially alter how international students are treated under U.S. tax law. “At present, most students on F-1 visas working through OPT are exempt from certain payroll taxes because they are classified as non-resident aliens for tax purposes,” Kranz explained.

“The new proposal would remove those exemptions, effectively reducing take-home pay by roughly 7.65%, the combined Social Security and Medicare tax rate.” Kranz added that while 7.65% may not sound drastic, for many recent graduates earning modest entry-level wages, the difference could be significant.

“These students often carry heavy education loans or family obligations back home. Beyond the financial hit, this could make the U.S. less attractive to global talent at a time when universities and employers are competing internationally for skilled graduates, particularly in STEM fields,” she said. She also advised students on OPT and STEM-OPT to stay informed and plan ahead.

“If this proposal advances, students should review their tax residency status, keep payroll records accurate, and adjust budgets to account for reduced income. Employers, too, must understand the new requirements and apply the correct withholdings,” Kranz noted. According to Kranz, the broader issue is about what message the U.S. is sending to the next generation of innovators. “These students invest heavily in their American education and contribute meaningfully to research and local economies. Penalising them through taxation risks discouraging that investment,” she said.

Student concerns

Immigration attorney Gnanamookan Senthurjothi, who specialises in U.S. visa matters, shared similar concerns. “If passed, the act would require OPT participants and their employers to pay FICA taxes, which are currently exempt. This could add approximately 15.3% to overall employment costs, raising expenses for employers and reducing net income for students,” Senthurjothi said.

He noted that Indian students, who represent one of the largest groups of OPT participants, may feel the impact most sharply. “They could lose thousands of dollars annually in taxes they currently do not pay. This could affect their budgets, savings, and overall living standards in the U.S.,” he explained. The OPT Fair Tax Act is still in its early stages and would need to pass both chambers of Congress before it can become law. Until then, the current FICA exemptions remain in place.

However, experts say the proposal could reshape how international students view post-study opportunities in the U.S. If implemented, the bill would represent one of the most significant changes to the taxation of foreign students in recent years, potentially altering not just the economics of studying in America but also its appeal as a global education destination.

news