US Proposes OPT Tax as 25% Outsourcing Penalty Hits American Companies

Trump’s new immigration restrictions are putting pressure on overseas businesses and students. Stricter rules are being implemented regarding the issuance of study visas to international students.

Additionally, measures are being taken to tax the income of international students who work in the United States following their education. Additionally, lawmakers have suggested taxing the profits of US businesses that contract with foreign countries.

The Trump administration is currently putting policies into place to safeguard American jobs and keep foreigners from filling them. Commenting on the move, Kamal Karanth, Co-founder of Xpheno stated, “The proposed hike in H1B visa fees is not a surprise, and IT services companies have been preparing for such developments. Over the last six months, many of them have either nominated or hired new GCC heads to capitalize on the GCC route for business. While higher visa costs could slow down onsite hiring, it will only accelerate the offshoring momentum. We expect MNCs to increase their reliance on GCCs and IT services firms in India, which remain a cost-effective option even after factoring in a 25% cess. In the near term, IT services companies may become more aggressive in offering GCC-specific services, and the increased supply of talent could also lead to softer pricing for GCC staffing.”

Lawmakers in the US have suggested taxing the money earned by overseas students participating in the Optional Practical Training (OPT) programme. Under the OPT programme, foreign students employed by US companies are now free from paying Social Security and Medicare taxes.

US Lawmakers Introduced Dignity Tax

The Dignity Act, which has been introduced, would require OPT students to pay FICA (Social Security and Medicare) taxes on their earnings. OPT students who are employed in the United States will be required to pay FICA taxes if the proposed Dignity Act is passed.

The current employer and employee Social Security tax rates are 6.2% and 6.2%, respectively, for a total tax rate of 12.4%. The current employer and employee Medicare rates are 1.45% and 1.45%, respectively, for a total of 2.9%. FICA taxes are currently waived for international students employed in the United States under the OPT programme.

Foreign students will be required to pay these taxes if the Act is passed. The only tax with a wage base restriction is Social Security. The highest salary that is taxable for that year is known as the wage base limit. This base limit for 2025 earnings is $176,100. The Medicare tax has no wage base restriction. Medicare tax applies to all covered wages.

US Administration Also Proposes HIRE Act

US businesses that hire foreign workers or contract out work to foreigners will be required to pay taxes to the US government. Senator Bernie Moreno introduced the Halting International Relocation of Employment Act, or HIRE Act, with the goal of preventing outsourcing by deterring American companies from hiring workers from other countries in search of lower wages.

A 25% tax on outsourcing payments made by American taxpayers or businesses to foreigners whose labour benefits American consumers is proposed under the HIRE Act. Those payments made after December 31, 2025, will be subject to the recently proposed levy.

Any American who makes an outsourcing payment is subject to a tax under the HIRE Act, which is equal to 25% of the payment’s total amount. Any business that hires foreign workers rather than Americans will be subject to a tax under the law, and the money raised will be used to support middle-class workforce development initiatives.