Washington, USA: Understanding FICA Tax for Indian Students in the US: Current Rules, Exemptions, and Future Changes
For thousands of Indian students studying and working in the United States, one lesser-known but important deduction from their paycheck is the FICA tax. As policymakers in Washington consider whether foreign students on the Optional Practical Training (OPT) program should continue to be exempt, knowing the current rules, exemptions, and potential reforms has become increasingly important.
What Is the FICA Tax?
The Federal Insurance Contributions Act (FICA) mandates payroll deductions to support Social Security and Medicare—two of the US’s core welfare programs. Contributions come from both employees and employers:
- 6.2% toward Social Security (applicable on wages up to $176,100 in 2025)
- 1.45% toward Medicare (with no income limit)
- In total, this amounts to 15.3% of earnings. While this deduction is standard for most American workers, the rules differ significantly for Indian students in the US.
FICA Tax and OPT: How It Works Now
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 possible 24-month extension for STEM graduates. OPT serves as a bridge between academic study and professional employment.
Currently, students on OPT who qualify as nonresident aliens are exempt from FICA tax. This exemption means neither the student nor the employer contributes the 15.3% combined tax. For example, an Indian graduate earning $60,000 annually would save approximately $4,590—a substantial benefit when covering rent, healthcare, and other living expenses.
Are Indian Students Required to Pay FICA?
Typically, Indian students in the US are not obligated to pay FICA during their first five calendar years on an F-1 visa. Earnings from campus employment, Curricular Practical Training (CPT), and OPT remain exempt during this time.
After five years, however, students may be reclassified as resident aliens under the substantial presence test. At that stage, unless they remain full-time students, they would be required to contribute to FICA just like American workers.
This exemption is based on the principle that temporary academic visa holders are not long-term beneficiaries of federal retirement programs.
Policy Proposals in 2025: Potential Changes
In 2025, lawmakers introduced two significant bills—the OPT Fair Tax Act and the DIGNITY Act—both aiming to remove the FICA exemption for foreign students on OPT.
If enacted, these measures would require both students and employers to pay 7.65% each toward Social Security and Medicare. For Indian graduates, this would reduce take-home pay and increase costs for US employers.
Proponents of these bills argue that exempting international students gives them an advantage over American graduates in the labour market.
Opponents warn that eliminating the exemption could deter global talent, hurt US competitiveness, and place additional financial pressure on young graduates already managing high living costs.
As of October 2025, these proposals are still under consideration, so the current FICA exemption remains in effect.
Why This Matters to Indian Students
With around 270,000 Indian students in the US, changes to FICA tax rules could have significant consequences. OPT often serves as a stepping stone to H-1B visas or as a source of international work experience before returning to India. Losing the exemption could reduce monthly disposable income by hundreds of dollars, making OPT less financially attractive.
Tips for Students
- Review paychecks: Make sure no FICA tax is deducted if you are eligible for the exemption.
- Claim refunds: If tax is wrongly withheld, use IRS Form 843 to recover the amount.
- Stay compliant: File federal and state tax returns annually, even if exempt.
- Monitor updates: Keep an eye on announcements from USCIS and the IRS for any policy changes.
