A new bill introduced in the U.S. Senate, the OPT Fair Tax Act, proposes ending the long-standing payroll tax exemption enjoyed by foreign students working under the Optional Practical Training (OPT) programme. This change could significantly impact both students and employers.
What the Bill Proposes
The bill aims to amend the Internal Revenue Code and the Social Security Act to treat employment by F-1 visa holders under OPT as taxable for the purposes of the Federal Insurance Contributions Act (FICA). Under the current rules, F-1 students on OPT do not pay Social Security and Medicare taxes. Should this change pass, wages earned under OPT would be subject to the same payroll tax rules as domestic employment.
How the Exemption Works Today
At present, OPT participants are classified as non-resident aliens for tax purposes, which exempts their earnings from FICA payroll taxes — roughly 15.3% of wages shared equally between employee and employer. For example, on a salary of US$50,000, the student would save about US$3,825 in these payroll taxes, and the employer would save a similar amount.
Potential Impacts if the Bill Becomes Law
If enacted, both students and employers would face new payroll tax liabilities. A student earning US$50,000 would pay approximately US$3,825 in payroll taxes, and the employer would incur the same amount — bringing the total additional cost of employment to around US$7,650 annually. For lower salaries of US$40,000, US$60,000 or US$80,000, the estimated payroll tax impact would be about US$3,060, US$4,590 and US$6,120 respectively.
What This Means for Indian Students
India is one of the largest source countries for OPT participants. Many Indian graduates use the OPT route to gain U.S. work experience before transitioning to other visa categories.
With the proposed tax change, take-home pay would reduce and cost of living adjustments in the U.S. would become more challenging. Employers may also reconsider hiring international graduates if the cost of employment increases. Some universities and policy groups caution that changes to the OPT programme could impact the U.S.’s competitiveness in global education and innovation.
Considerations for Students and Employers
- Students should reassess their take-home pay expectations and budget accordingly if this bill becomes law.
- Employers may factor in higher employment costs when recruiting international graduates.
- Both parties should monitor legislative developments carefully, as the bill must pass through both chambers of Congress and receive presidential approval before becoming law.
- Indian students, in particular, may need to explore alternative plans or adjust timelines for transition from OPT to other visa statuses.
Conclusion
The proposed elimination of the payroll tax exemption for OPT participants represents a significant shift. For students on F-1 visas, it means less take-home pay and potentially higher living costs in the U.S. For employers, it adds cost and may influence hiring decisions. For nations like India—whose students form a large portion of the OPT programme—this is a development worth watching closely.
Source: Economictimes Indiatimes
