Suppose there is a tax incentive for employers to hire foreign workers rather than American ones (as there is in a special set of circumstances).
The routine assumption is that the foreign workers will know about it and that the favored employers will take advantage of it. We tend to think that no one is going to leave money on the table.
More broadly, too many of us (including this writer) often assume that a stated federal policy will, in fact, be routinely implemented in real life. Not so in this case.
The not-always-used tax break in question is terrible public policy. Both the Bush and the Obama administrations decided – with no input from Congress — that foreign students, after securing a high-tech college degree in the United States can work for up to 29 months in the United States without either the students or the employers paying payroll taxes, as I reported in an earlier blog.
This creates a totally undeserved tax break for the alien worker, but worse, gives employers as much as a $10,000 bonus for hiring a foreign grad rather than an American one. At the other end of the system, it denies that much money to the badly strained Social Security and Medicare trust funds, and can thus be regarded as a direct subsidy, supported by our elderly, given to corporations and foreign students.
The visa status in this case is a variation of the basic foreign student arrangement, the F-1, with the 29-month extension called OPT (optional practical training). Colleges and universities, under the most minimal federal supervision, decide which F-1 visa holders can get OPT status. That status also exists for alien grads not in STEM (science, technology, engineering, and math), but only for 12 months after graduation.
My assumption was that both the students and their (off-campus) employers knew about this deal, and took advantage of it, but I find that is only partially correct. I have an opportunity to test that assumption every spring as I volunteer with graduate students at a D.C.-area university on their income tax problems.
In the last couple of years, when I find myself talking to an OPT-status or OPT-eligible grad student, often in computer sciences, I ask the following hypothetical question:
There's an employer who is thinking about hiring either you or me for a one-year job; let's assume that we are both the same age and that the employer thinks that we are absolutely equally qualified for the job, but there's a financial angle that causes him to hire one of us. Which one is it, the citizen or the international student? And why?
I tried that on about 20 international grad students this year, all in or eligible for OPT status, and none of them realized that they had a 7.65 percent advantage (what the employers pay in payroll taxes) over the citizen job applicant. I stopped asking the question when I found no knowledge on this variable.
It is not because grad students are not bright, nor are they oblivious to financial matters, it is just a bit of their financial picture that is not known to them.
What I find even more interesting is the fact that many of their former employers seem to have the same blind spot. In the course of the income tax work I routinely look at the students' W-2 forms showing their payroll deductions for the past year, and many of them have worked off-campus, often for computer-centric firms, usually in the summer. In a substantial minority of cases, I see that the employers have deducted payroll taxes when they need not have done so – indicating that the employers, too, have paid payroll taxes which they could have legally avoided.
In these cases, the students can tell the employers of their mistake, and both employers and workers can get a refund.
The point of all this is that sometimes federal policy is not implemented, and sometimes the potential beneficiaries – aliens included – are not aware of tax breaks available to them.
Policy is important, but it is not always self-implementing.
