US bill may end tax break for foreign students on OPT

Economic Times

06-08-2025

A new immigration bill in the US Congress could end a long-standing tax exemption for international students working under the Optional Practical Training (OPT) programme. The proposal, part of the broader DIGNITY Act of 2025, would make foreign graduates liable for Social Security and Medicare taxes, also known as FICA, raising concerns across university campuses and immigrant support groups.
The OPT programme allows international students in the US to work in their field of study for up to 12 months—or 36 months for science, technology, engineering and math (STEM) graduates—after completing their degrees. Currently, OPT participants are exempt from FICA taxes, which amount to a combined 15.3% payroll deduction split between employee and employer.
FICA taxes for OPT: From exemption to deduction Under existing law, wages earned by OPT participants are treated as nonresident income and are exempt from the 6.2% Social Security and 1.45% Medicare taxes. If the proposed change becomes law, OPT workers would be treated the same as US employees for tax purposes, requiring both workers and employers to pay their share of the 15.3% payroll tax. This could add hundreds or thousands of dollars in annual tax deductions for international students already dealing with high tuition fees and rising living costs.
DIGNITY Act provisions: Immigration, tax, and visa reforms The proposal is included in the DIGNITY Act of 2025, reintroduced this summer by Congresswomen María Elvira Salazar and Veronica Escobar. Marketed as a bipartisan immigration reform package, the Act includes provisions to legalize undocumented immigrants, enhance border security, and revise student visa policies. However, critics say the FICA provision contradicts the Act's stated goal of maintaining US competitiveness. They argue that taxing international students could discourage them from studying or working in the US, weakening the country's appeal as a global education destination.
OPT debate intensifies amid political shifts The OPT programme has increasingly become part of a wider debate around immigration and labor. Some conservative lawmakers argue that OPT provides foreign graduates with an edge over domestic job seekers, particularly in technology and engineering roles. Joseph Edlow, the newly appointed director of US Citizenship and Immigration Services (USCIS), has been critical of the programme. 'The programme is ripe for abuse,' Edlow said. 'It's a workaround for employers seeking cheaper labor.' His comments reflect growing Republican support for tighter visa rules and expanded taxation of international student workers.
Impact on hiring, enrolments and education value Beyond student finances, the proposed change could affect how employers hire. Businesses that currently hire OPT graduates without paying payroll tax would face new costs. This may prompt some employers—especially startups and small firms—to hire fewer OPT workers or move jobs offshore.
US universities also see the move as a potential deterrent for future students. A reduction in international enrolments could affect research output and revenue, especially in technical fields that depend on overseas talent.
According to US Department of Homeland Security data, over 200,000 international students take part in OPT every year, with most employed in sectors such as healthcare, IT and engineering. Unlike Social Security taxes, which have a wage cap of $176,100 for 2025, Medicare taxes apply to all earnings—meaning every dollar earned by OPT students could be taxed.
How close is the DIGNITY Act to becoming a reality? The DIGNITY Act is still moving through Congress and is likely to face pushback. Universities, student associations, and parts of the private sector are expected to oppose the removal of FICA exemptions. However, the inclusion of this tax proposal signals a broader shift in US immigration and education policy—one that may increasingly view international students not just as learners, but also as taxable workers. For many students considering education in the US, the cost-benefit equation may soon change.