FICA Tax for Indian Students in the USA: Possible Reforms

For thousands of Indian students studying and working in the United States, a little-known but critical element of their paycheck is the FICA tax. As Washington debates whether to extend this tax to foreign students on the Optional Practical Training (OPT) program, understanding the rules, exemptions, and potential changes ahead has become essential.

What is FICA Tax?

The Federal Insurance Contributions Act (FICA) requires payroll contributions to fund Social Security and Medicare, two of America’s cornerstone welfare programs. Both employees and employers contribute:

• 6.2% for Social Security (on wages up to $176,100 in 2025)

• 1.45% for Medicare (with no cap)

Together, these amount to 15.3% of wages. For most American workers, this deduction is automatic. But for Indian students in the USA, the rules are quite different.

FICA Tax and OPT: Current Situation

The Optional Practical Training (OPT) program allows international students on F-1 visas to work in the US for 12 months after graduation, with a 24-month extension for STEM graduates. OPT serves as a vital transition between academics and long-term employment.

Under current law, students on OPT who still qualify as nonresident aliens are exempt from FICA tax. This means neither the student nor the employer pays the combined 15.3%. For instance, an Indian graduate earning $60,000 annually saves around $4,590 thanks to this exemption—a significant relief when rent, healthcare, and student expenses are high.

Are Indian Students Required to Pay FICA Tax?

Generally, Indian students in the US are not required to pay FICA tax during their first five calendar years on an F-1 visa. Their wages from campus jobs, Curricular Practical Training (CPT), and OPT remain exempt during this period.

After five years, however, students may be reclassified as resident aliens if they meet the substantial presence test. At that point, unless they remain full-time students, they must contribute to FICA like US workers.

This exemption recognizes that temporary academic visa holders are not long-term beneficiaries of federal retirement programs.

Policy Proposals in 2025: A Turning Point

In 2025, US lawmakers introduced two major bills—the OPT Fair Tax Act and the DIGNITY Act—both seeking to end the FICA exemption for foreign students on OPT.

If passed, these laws would require both students and employers to pay the standard 7.65% each toward Social Security and Medicare. For Indian graduates, this would mean smaller take-home salaries and higher hiring costs for US companies.

• Supporters argue that the exemption gives international graduates an edge over American students in the job market.

• Critics counter that it could discourage global talent, reduce US competitiveness, and burden young graduates already struggling with high costs.

As of October 2025, these proposals remain under review. Until then, the current exemption continues.

Why It Matters for Indian Students

With nearly 270,000 Indian students in the US, the debate over FICA tax has far-reaching implications. For many, OPT is a stepping stone to the H-1B visa or valuable international work experience before returning to India. Losing the FICA exemption could cut disposable income by hundreds of dollars monthly, potentially making OPT less appealing.

Practical Tips for Students

• Check your pay slips: Ensure no FICA tax is withheld if you are exempt.

• File for refunds: If wrongly deducted, use IRS Form 843 to reclaim your money.

• Stay compliant: Always file annual federal and state tax returns, even when exempt.

• Follow updates: Monitor announcements from USCIS and the IRS regarding policy shifts.

Also Read : Jaishankar: India-US Trade Relations Strained but Not Broken