GOP Targets $36B OPT Loophole After Phantom Employee Scandal

A bombshell report from U.S. Immigration and Customs Enforcement (ICE) revealing over 10,000 “phantom employees” — foreign students who obtained work authorization through the Optional Practical Training (OPT) program but never showed up for work — has spurred Republican lawmakers to crack down on the foreign worker pipeline. Rep. Glenn Grothman (R-WI) introduced the “OPT Fair Tax Act” on May 21, 2026, which would eliminate the payroll tax exemption for employers who hire foreign OPT workers, removing what he calls a “significant financial incentive” to bypass American workers.

Background: The OPT Program and the Tax Loophole

OPT is a U.S. immigration program that allows international students on F-1 visas to work temporarily in the country in jobs related to their field of study. Created under the Bush administration and expanded under the Obama administration, the program was originally expected to involve “only a few thousand foreign students,” according to Fox News. Instead, an average of approximately 330,000 students participated annually between fiscal years 2017 and 2022.

Under current federal law, foreign students and employers participating in the OPT program are exempt from paying Social Security and Medicare (FICA) payroll taxes — taxes that companies are required to pay for domestic workers. The combined FICA tax rate is 15.3% of wages, split equally between employee and employer. The Economic Times reported that on a $50,000 salary, a student saves approximately $3,825 annually in payroll taxes, while their employer saves an equal amount.

The ICE Investigation: 10,000 Phantom Employees

Acting ICE Director Todd Lyons announced on May 12 that federal investigators uncovered more than 10,000 foreign students connected to “highly suspect employers” — and this is “just among the top 25 OPT employers.” Lyons called this “only the tip of the iceberg,” as reported by India Today.

HSI officers visited problematic OPT worksites in Virginia, Texas, Georgia, Illinois, New York, New Jersey, North Carolina, and Florida. Investigators discovered “empty buildings and locked doors at addresses where hundreds of foreign students are allegedly employed.” Hundreds of foreign students were listed as working out of residential addresses. Multiple OPT employers claimed to operate from the same address, but none actually leased the facility.

“This is not accidental. This is deliberate, coordinated and criminal,” Lyons said at a press conference, calling the fraud “a blatant attack on the goodwill of the American people.” He noted that OPT “ballooned into an uncontrolled guest worker pipeline with hundreds of thousands of foreign students working in the United States.”

The OPT Fair Tax Act: Closing the Loophole

Grothman’s bill, introduced on May 21, is the House companion to a Senate bill (S. 2940) introduced by Sen. Tom Cotton (R-AR) in September 2025. The OPT Fair Tax Act would amend the Internal Revenue Code and the Social Security Act to classify OPT employment as taxable under FICA, ending the current exemption.

“Americans should not be put at a disadvantage because Washington created a loophole that favors hiring foreign workers over qualified U.S. citizens,” Grothman told Fox News Digital. “Too many young Americans graduating from our colleges and universities are forced to compete against a system that tilts the playing field against them.”

The Institute for Progress estimated that eliminating the tax exemption would increase federal revenue by between $27 billion and $36 billion over a 10-year period.

Sen. Cotton, upon introducing his version of the bill, said: “Our tax code shouldn’t incentivise businesses to hire foreign workers. By ending the FICA tax exemption, we will put American workers first.”

Broader Context: The Fraud Czar and DOJ Task Force

The investigation and legislative push come amid a broader anti-fraud effort by the Trump administration. President Donald Trump appointed Vice President JD Vance as “Fraud Czar” in April 2026, heading a newly formed anti-fraud task force. The Department of Justice established an inter-agency task force earlier in 2026 to investigate long-running taxpayer fraud and has called for tips on employers favoring foreign workers in hiring practices.

Vance celebrated the ICE discovery on X as “another great win for our fraud task force,” stating that the administration “will not tolerate foreign nationals abusing our visa system at the expense of the American people.”

Analysis and Implications

The “phantom employees” scandal represents a significant convergence of immigration enforcement, tax policy, and labor market dynamics. The legislation has the potential to reshape the landscape for the hundreds of thousands of international students currently in the U.S., American college graduates entering the workforce, and employers who rely on the OPT program for talent.

Critics of the bill argue it could reduce take-home pay for international students, making the U.S. less attractive for global talent and potentially affecting U.S. competitiveness in global education and innovation. Universities and policy groups have warned about impacts on international student enrollment.

What’s Next

The Senate version of the OPT Fair Tax Act (S. 2940) has been pending before the Senate Committee on Finance since September 2025. The introduction of the House companion bill could accelerate legislative action. The bill must pass both chambers of Congress and receive presidential approval to become law. Key questions remain: whether the bill will gain any bipartisan support, how universities will respond given their reliance on international student tuition, and what the full scale of the OPT fraud actually is — with Lyons warning that the 10,000 figure is “just the tip of the iceberg.”