Proposed OPT Tax Could Reduce Take-Home Pay for International Students

International students working in the United States through the Optional Practical Training (OPT) programme may soon face lower take-home pay under a proposed law that would end their exemption from federal payroll taxes.

A bill known as the OPT Fair Tax Act, introduced by Senator Tom Cotton, would require OPT participants to pay Federal Insurance Contributions Act (FICA) taxes for Social Security and Medicare. Employers would also be required to contribute at the same rates applied to American workers. 

Supporters present the measure as a way to prioritise domestic labour, while critics warn it could weaken the attractiveness of US higher education for international students. Currently, most F-1 visa holders working under OPT are exempt from FICA taxes. 

These taxes consist of a 6.2 percent Social Security contribution and a 1.45 percent Medicare contribution, paid by both the employee and employer. Together they amount to 15.3 per cent of wages, with Social Security capped at the annual wage base limit of $176,100 for 2025. 

Medicare contributions apply to all earnings without a cap. The exemption has long served as a financial benefit for foreign graduates beginning their careers in the United States.

If passed, the legislation would make OPT earnings taxable for the first time. Analysts note that the consequences would be most significant in science, technology, engineering and mathematics (STEM) fields, where OPT participation is particularly high. 

Sanjay Laul, founder of the international education platform MSM Unify, said the change would reduce net income for graduates and increase hiring costs for employers. Federal figures indicate that 1.58 million F-1 and M-1 students were active in 2024, with nearly 195,000 taking part in OPT before or after completing their studies. 

Indian nationals, who make up roughly one quarter of all international students in the United States, could be among the most affected groups. Rising costs may lead some families to reconsider study plans abroad.

The debate surrounding OPT extends beyond taxation. Advocacy groups such as the Federation for American Immigration Reform (FAIR) have urged lawmakers to end the programme, arguing it harms American workers. Senior officials, including former US Citizenship and Immigration Services director Joseph Edlow, and commentators such as Jessica Vaughan of the Centre for Immigration Studies, have also questioned the programme’s value.

Universities and employers are watching closely, as OPT has been a key component of the US higher education system, allowing graduates to gain up to two years of work experience in their field. Observers note that introducing new taxes on OPT earnings may influence global student mobility. 

Countries such as Canada, Australia and the United Kingdom already compete for international enrolments by promoting post-study work options. Additional financial pressures in the United States could prompt students to seek more predictable or affordable alternatives.