US Congress may end to OPT tax exemption in DIGNITY Act: What does it mean for Indian students

A new legislative proposal in the US Congress could reshape the financial outlook for international students, especially from India, studying in America. The DIGNITY Act of 2025, spearheaded by Congresswomen María Elvira Salazar and Veronica Escobar, seeks to revoke the long-standing FICA tax exemption for students working under the Optional Practical Training (OPT) program. 

The OPT program allows international graduates to gain work experience in the US for up to 12 months, or 36 months for STEM graduates. Currently, these students are exempt from FICA taxes—which include Social Security (6.2%) and Medicare (1.45%) contributions—saving them and their employers a combined 15.3% in payroll taxes.

Under the proposed changes, foreign students on OPT would no longer enjoy this exemption. This means they would have to pay an additional 15.3% on their earnings, a significant burden for students already managing high tuition fees and living expenses. For many, this could amount to several thousand dollars annually.

FICA (Federal Insurance Contributions Act) taxes are split between Social Security, which covers retirement, disability, and survivors' benefits, and Medicare, which funds hospital insurance. While Social Security taxes apply only up to a wage base limit ($176,100 for 2025), Medicare tax applies to all earnings with no cap.

The financial implications of the proposed tax change are substantial—not just for students, but also for employers. Startups and small businesses that often rely on OPT talent may be deterred by the added cost. Universities, too, fear that the loss of the FICA exemption could reduce the appeal of a US education, potentially impacting international student enrolments and the country’s academic competitiveness.

The DIGNITY Act, presented as a broader immigration reform bill, includes several sweeping proposals—such as a seven-year earned legal status program for undocumented immigrants, a path to residency based on good behavior and community contributions, and enhanced border security. However, it's the FICA provision affecting OPT students that has generated heated debate within the higher education and immigrant advocacy communities.

Critics argue that taxing OPT students like domestic workers ignores the temporary, non-immigrant nature of their visa status and could discourage global talent from choosing the US as an academic destination. Joseph B. Edlow, Director, U.S. Citizenship and Immigration Services, has criticised the OPT programme as a “workaround” for cheap labour, an argument that resonates with factions in the Republican Party pushing for tighter restrictions.

The potential fallout is far-reaching. The added tax could force students to cut back on living costs, remittances, or savings. Employers might shift hiring patterns. And universities, which rely heavily on international tuition, may face declining demand, impacting not only campus diversity but also local economies supported by student spending.

While the DIGNITY Act aims to balance immigration reform with labor protections, the proposed FICA tax on OPT wages has become a flashpoint. The bill still faces legislative hurdles and mounting opposition from academic institutions, business leaders, and immigration advocates.

For now, international students and the institutions that support them are watching closely. The final outcome could redefine not only how the US supports global talent but also its standing in the international education landscape.