The international students working in the US under the OPT program may soon see a lower take-home pay. The US is preparing to tax the earnings of OPT foreign workers by subjecting them to a Medicare tax.
Senator Tom Cotton has introduced legislation titled the ‘OPT Fair Tax Act’, which requires foreign workers participating in the Optional Practical Training (OPT) program and their employers to pay FICA taxes. This bill ends the existing tax exemption employers receive for employing foreign workers and puts American workers first.
One of the primary reasons why American education appeals to international students is the availability of the OPT program that allows foreign students to gain work experience in US companies for up to 12 or 24 months.
Now, taxing the earnings of foreign students is likely to reduce the US’s appeal as a study abroad destination. “If the OPT Fair Tax Act becomes law, OPT pay would be taxed for the first time in the U.S., reducing take-home pay for students and adding costs for employers. The effect would be strongest in STEM fields, where OPT use is high,” says Sanjay Laul, Founder, MSM Unify.
What are FICA taxes
FICA taxes refer to the Social Security and Medicare taxes. Taxes under the Federal Insurance Contributions Act (FICA) are composed of the old-age, survivors, and disability insurance taxes, also known as Social Security taxes, and the hospital insurance taxes, also known as Medicare taxes.
The current Social Security tax rate is 6.2% for employers and 6.2% for employees, totaling 12.4%. The current Medicare rate is 1.45% for employers and 1.45% for employees, totaling 2.9%.
Foreign students working in the United States under the OPT program are now free from FICA taxes. If the Act is passed, overseas students will be required to pay these taxes.
“Today, most non-resident F-1 students don’t pay Social Security and Medicare (FICA) taxes while working on OPT. But the OPT Fair Tax Act would end that exemption by making OPT jobs FICA-taxable, like most U.S. employment. That means smaller take-home pay and higher hiring costs,” says Laul.
Only the Social Security tax has a wage base cap. The wage base limit is the highest wage that is liable to taxation for that year. For earnings in 2025, the basic limit is $176,100. There is no wage base limit for Medicare taxes. All covered wages are subject to the Medicare tax.
The OPT Fair Tax Act
The OPT Fair Tax Act would remove the exemption employers receive for FICA taxes for foreign workers participating in the OPT program. The new rules require all OPT workers and their employers to pay FICA taxes. The bill requires employers to match contributions at the same rate as if the employee were an American citizen.
Impact of OPT Taxation
The impact of OPT earnings of foreign students is likely to be felt more by Indian students. “Out of the 1.58 million active F-1 and M-1 students listed by SEVIS in 2024, 194,554 students used OPT prior to or following their graduation. Since about 25% of all international students in the US are from India, any major change to this policy could impact a sizable and growing population,” says Laul.
OPT Program Facing Risk of Termination
The campaign against hiring foreign workers in favor of American workers is gaining momentum, with the Federation for American Immigration Reform (FAIR) advocating for the termination of the OPT program.
Jessica Vaughan, Director of Policy Studies at the Center, has raised concerns about the Optional Practical Training (OPT) program. Meanwhile, Joseph Edlow, the new director of U.S. Citizenship and Immigration Services (USCIS), has also voiced his opinion to terminate the OPT program.
If the OPT program continues but earnings are taxed, students and parents may reconsider the United States as a study abroad destination. “If FICA taxes are applied to OPT, then students might consider pursuing degrees with large paid internships so that pre-OPT savings can be done or explore other countries with cheaper or more stable labor forces,” says Laul.