Senator Tom Cotton has introduced the OPT Fair Tax Act, which proposes to make foreign students enrolled in the OPT program and their employers pay FICA taxes by eliminating existing exemptions.
International students in the US are allowed to work in American companies under the Optional Practical Training program, post completion of their studies. The OPT program helps foreign students to gain work experience and also earn for themselves.
The foreign students who would enroll for the OPT program may soon see a lower take-home pay as the US is preparing to tax the earnings of OPT foreign workers, by subjecting them to insurance tax.
Senator Tom Cotton has introduced legislation titled ‘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.
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.
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.
The legislation aims to amend the Internal Revenue Code of 1986 to include optional practical training for F-1 visa holders as employment for purposes of taxes under the Federal Insurance Contribution Act and the Social Security Act.
OPT Program Faces Termination
The Optional Practical Training (OPT) program, which allows foreign students in America to gain job experience that lasts up to 12 or 24 months, is facing the risk of termination.
The Trump administration has proposed terminating the Optional Practical Training (OPT) program, with various lawmakers and US administrators involved in the discussions.
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), voices his opinion to terminate the OPT program, which permits foreign graduates to work in the U.S. after finishing their studies.
The Dignity Act introduced by other lawmakers also aims to impose Social Security and Medicare taxes on the earnings of international students participating in the Optional Practical Training (OPT) program in the United States. The Dignity Act also proposes to tax the earnings of the OPT students by making them pay FICA (Social Security and Medicare) taxes.