Tax Deductions Indian Students Can Claim on OPT/CPT
For Indian students working on Curricular Practical Training (CPT) or Optional Practical Training (OPT), 2026 is a landmark year for tax savings. Thanks to the One Big Beautiful Bill (OBBB) and the long-standing U.S.-India Tax Treaty, you have access to deductions that most international students simply cannot claim.
Understanding these deductions is the difference between a standard refund and maximizing your hard-earned income.
The Article 21 Standard Deduction ($15,750)
This is the most powerful deduction available to you. While most nonresidents are barred from the standard deduction, Indian students are the exception.
- The Rule: Under Article 21 of the U.S.-India Treaty, you can claim the Standard Deduction, which has risen to $15,750 for the 2025 tax year (filed in 2026).
- Impact: This amount is subtracted directly from your gross income before taxes are calculated. If you earned $25,000 on CPT, you are only taxed on $9,250.
New: “No Tax on Overtime” Deduction
A major highlight of the OBBB is the tax relief for those who work hard.
- The Benefit: If you worked more than 40 hours in a week during your OPT, you can deduct the “extra half” of your time-and-a-half pay.
- The Limit: You can deduct up to $12,500 of qualified overtime pay.
- Requirement: Your employer must report this separately on your W-2. If they haven’t, you may need to provide pay stubs to substantiate the hours worked beyond the 40-hour threshold.
New: Made-in-America Car Loan Interest
Many OPT students purchase a vehicle for their first job. Under the OBBB’s “No Tax on Car Loan Interest” provision:
- The Deduction: You can deduct up to $10,000 in interest paid on a loan for a new, Made-in-America vehicle.
- The Catch: The vehicle’s final assembly must have occurred in the U.S. (look for a VIN starting with 1, 4, or 5).
- Filing: This is an “above-the-line” deduction, meaning you get it even if you take the $15,750 treaty deduction mentioned above.
Lifetime Learning Credit (LLC)
If you took vocational courses or continued specialized training while on OPT:
- The Credit: You may be eligible for a credit of up to $2,000 (20% of the first $10,000 in tuition).
- Eligibility: This is generally available to those who have transitioned to “Resident Alien” status (Year 6+) or those filing a joint return with a resident spouse. Note that pure nonresidents (1040-NR) generally cannot claim this unless a specific election is made.
How KKCA Secures Your Status
The IRS is particularly vigilant about students “double-dipping” or misapplying new OBBB deductions. At KKCA, we protect you by:
- OBBB Compliance: We verify your VIN and loan documents before claiming the car interest deduction to ensure the vehicle qualifies as “Made-in-America.”
- Overtime Calculation: We help you parse your pay stubs to extract the deductible portion of your overtime pay if your employer’s W-2 is unclear.
- Treaty Stacking: We ensure that claiming new OBBB deductions doesn’t conflict with your Article 21 Treaty rights, maintaining your standing for future H1B applications.
Call to Action
Looking for personalized tax services about your specific tax situation, please contact us. We are here to help you with your specific tax matters.
Frequently Asked Questions (FAQ)
Q: Can I claim the car loan deduction for a used car? A: No. The OBBB provision specifically applies to new vehicles purchased after December 31, 2024.
Q: Does the “No Tax on Overtime” mean I don’t pay Social Security on it? A: No. The OBBB deduction applies only to Federal Income Tax. You (and your employer) still owe FICA taxes on those wages if you are no longer in your 5-year exempt period.
Q: Can I deduct my moving expenses for a new OPT job? A: Currently, moving expense deductions are only available for active-duty military members. Most OPT students cannot deduct these costs.
Q: What if I worked two jobs? Is the $12,500 overtime limit per job? A: No, the $12,500 limit is the total per individual across all employers for the tax year.
Disclaimer
This blog is intended for informational purposes only and does not constitute legal or tax advice. Please consult a qualified U.S. CPA or tax attorney for guidance specific to your situation.