For F-1 visa holders, Optional Practical Training (OPT) is a vital pathway to gaining hands-on experience in their field of study while staying compliant with immigration requirements. Many students explore self-employed OPT, which provides a unique opportunity to work for oneself while building professional skills. Whether you have a business idea, wish to freelance, or launch a startup, starting an LLC on OPT could be a great option. F-1 OPT self-employment allows students to take control of their careers while staying compliant with U.S. immigration regulations. Understanding self-employment OPT is essential for students who want to leverage their academic training in entrepreneurial or independent projects.
One common concern of students who want to start a business is how to comply with OPT self-employed USCIS rules. These regulations allow F-1 students to work independently, provided their business activities align with their academic major and involve active, full-time engagement. For STEM students, the 24-month extension opens the door to STEM OPT self-employment, although this option comes with additional requirements that have to be carefully considered. This opportunity enables students to further develop their ventures under specific guidelines. Pursuing an F-1 visa self-employment is one way to meet OPT requirements and an opportunity to grow a business or build a freelancing career that can lead to long-term professional success.
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This article will guide students on navigating the challenges of F-1 OPT self-employment and discuss options for transitioning to another long-term employment-based visa immigration after self-employment on OPT. By understanding the nuances of F-1 OPT self-employment, students can turn their academic skills into thriving businesses while staying compliant with immigration rules, paving the way for future opportunities. Whether freelancing or forming a company, the possibilities with F-1 OPT self-employment are limitless.
Understanding the rules around F-1 self-employment is crucial to avoid any violations of your visa status. Watch my video discussion, where I break down things you need to know regarding self-employment for F-1 students and how to stay compliant with immigration rules.
Understanding Self-employment on OPT
Optional Practical Training (OPT) is an excellent opportunity for F-1 visa holders to gain practical work experience in their fields of study. While many students pursue traditional employment with established U.S. companies, others explore the entrepreneurial path, leveraging self-employment OPT as a way to create opportunities. But what does self-employment mean under OPT regulations, and how can students ensure compliance while pursuing this option?
Self-employment on OPT means that students can legally work for themselves as freelancers, contractors, or business owners as long as the work is directly related to their academic field. For instance, a computer science graduate may choose to develop custom software solutions, while a business major might launch a consulting firm. The key is ensuring the work aligns with the academic training received during the degree program.
Can OPT be self-employed? Can F-1 students work as independent contractors on OPT? These are some of the most common questions F-1 students ask during a consultation. In this article, you will discover that both situations are possible, but specific conditions must be met to remain compliant with immigration regulations. Establishing a legitimate business, actively managing the business by either working full-time or part-time and maintaining thorough documentation to verify compliance are OPT regulations that students must comply with. For business-minded students, this path offers a unique chance to innovate, build a professional network, and gain independence.
What Are the Requirements for Self-employment on OPT?
To work under self-employment OPT, students must adhere to strict guidelines enforced by U.S. Immigration and Customs Enforcement (ICE). These rules are designed to ensure that the work performed aligns with the student’s academic training and immigration status. The exact language in U.S. Immigration and Customs Enforcement’s guidance states: “A student on OPT may start a business and be self-employed. The student must be able to prove that he or she has the proper business licenses and is actively engaged in a business related to the student’s degree program.” Let’s explore these requirements in greater detail:
1. Business Licenses – Establishing a Company
First, the rule requires that a student have “the proper business licenses.” Setting up a legitimate business is one of the foundations of F-1 OPT self-employment. Setting up a business involves starting an LLC on OPT or using another entity structure, such as a partnership or corporation. Students must also obtain all necessary licenses and permits for the business to operate legally. It is important to note that every state in the country has different licensing procedures, and some states require additional licensing. Also, business licenses and permits are often handled at the county and city level rather than the state. For example, a marketing graduate in one city might need local business licenses to offer consulting services, while a software developer in another may require a county business license to sell their product. Many states and localities do not require companies operating in them to have specific business licenses or permits.
Additionally, securing a federal Employer Identification Number (EIN) from the Internal Revenue Service (IRS) is also necessary for tax compliance. In addition to forming the company with the state and securing an EIN from the IRS, your company will need internal agreements, such as Operating Agreement, Bylaws, etc., that outline ownership, management, and all other governing rules of the company.
2. Active Engagement
Second, the rule requires that the student be “actively engaged in” the business. If a student does not have other employment besides OPT self-employment, this requirement is generally interpreted to mean that the student must work full-time for the business. If the student is only working part-time for their business, then to meet immigration requirements, the student should actively engage in their business for at least 20 hours per week. Owning a business without actively participating in its day-to-day operations, like passive investments, does not qualify. Instead, the student must demonstrate continuous involvement through client interactions, product development, or business strategy. The goal is to show that the business is a genuine, full-time endeavor in which the student is highly involved and that supports the student’s career development.
It is important to keep detailed records and documents proving your engagement in your business. This is one of the areas where we see many students fall short. Since startups often do not generate revenue, students have to be proactive in good record-keeping. Our firm routinely helps students develop strategies on how they can prove their active engagement if the business did not generate revenue, including representing students in RFE responses related to their self-employment while on OPT.
3. Related to Degree Program
Third, the business must be “related to the student’s degree program.” This requirement limits the type of businesses a student on OPT may start. The business itself and the work performed under self-employment OPT must be directly related to the student’s degree. This requirement verifies that the student applies the skills and knowledge they gained during their academic program. For instance, a graphic design graduate might start a design studio, while an engineering student might launch a tech startup. The connection between the business and the academic field must be clear and well-documented, often requiring input from a Designated School Official (DSO).
I want to highlight that while students generally start businesses related to their major, the analysis is not quite that simple. A business may be related to the student’s degree if the student has taken certain classes while pursuing their degree. While a clear correlation between the degree program and the business must be established, a student may be able to start a business that is not in the exact field of their degree. Our firm regularly advises students on how to navigate this requirement and how to work with their DSO on ensuring that they remain compliant.
4. Maintaining Thorough Documentation
While not a direct requirement of the rule, one of the most critical aspects of OPT self-employment compliance is maintaining detailed records of your business activities. Immigration cases generally involve the filing of documents and responding to requests via documents. In most cases, the F-1 student will not be given an opportunity to explain their business activities to an immigration officer. This makes detailed record-keeping and document retention absolutely critical. This includes contracts, invoices, tax filings, business licenses, and all other proof of compliance with the business license, active engagement and related degree requirements.
USCIS may request these documents to verify compliance with self-employment OPT regulations. Failure to provide thorough documentation can result in denials of future change of status, adjustment of status, or other immigration applications. To avoid immigration violations, meticulous record-keeping is essential. I routinely work with F-1 students on developing systems on how they can implement careful record-keeping and documentation systems to ensure they can prove their compliance with all OPT self-employment rules.
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Schedule a consultationWhat are the Benefits of Self-employment on OPT?
Choosing self-employed OPT offers a range of benefits that can significantly enhance a student’s professional journey. Here are some of the most compelling advantages:
1. Opportunity to Start a Business in the United States
For an entrepreneurial student on OPT, the self-employment option gives the student 12 months to establish and grow their business in the United States. This could be sufficient time to develop a critical U.S. market niche, secure vital financing, or turn a business idea from concept to reality. F-1 OPT self-employment is the only immigration option that allows a foreign national to start a business in the United States without having to invest substantial funds, hire employees, or be extraordinary in their field.
2. Career Independence and Creativity
For business-minded students, self-employment OPT provides the freedom to pursue unique ideas and carve out a niche in their industry. Unlike traditional employment, where roles are often pre-defined, self-employment allows students to innovate, explore novel ideas, and apply their skills in creative ways. For instance, a data science graduate might use this opportunity to develop a groundbreaking analytics platform or other technology.
3. Networking and Professional Growth
Building a business opens networking opportunities that traditional jobs may not offer. Cultivating relationships with clients, investors, and industry professionals is the key for students on F-1 OPT self-employment to establish valuable connections that support long-term career growth. These relationships can lead to mentorship, partnerships, or even funding opportunities in the future.
4. Flexibility
Self-employment OPT allows students to choose the projects they work on and to set their own schedules as long as they comply with all rules. This flexibility is beneficial for students who want to pursue non-traditional careers and explore business ideas.
5. Full Utilization of OPT Period – 90-day Unemployment Clock
F-1 OPT self-employment allows students to comply with the OPT 90-Day Unemployment Rule. Once a student launches their OPT business and reports it in their SEVP portal, it stops the 90-day unemployment clock – because the student has started to work for their own business under the OPT self-employment rules.
This allows the student to remain in the U.S. for the entire 12-month OPT period as long as they comply with the F-1 OPT self-employment requirements outlined above. If you do not organize your business and activities in compliance with immigration rules, you could violate your F-1 student status and risk future immigration issues.
To learn more on how to Avoid Violations of the 90-Day Unemployment Rule, check out my in-depth video discussing strategies to help you stay compliant and maintain your status.
Can a Student on STEM OPT Be Self-employed?
The rules for STEM OPT self-employment are more complex for students pursuing the STEM OPT extension. While the standard OPT allows self-employment, the STEM extension imposes stricter requirements, primarily due to the need for a formal employer-employee relationship. However, STEM OPT self-employment is not entirely off the table if structured correctly. Given the complexity of these requirements, I highly advise you to work with an experienced attorney who understands both startup and immigration rules in order to ensure you comply with all relevant requirements.
Before launching your STEM OPT self-employment journey, watch my detailed guide to learn everything you need to know and stay compliant with F-1 STEM OPT rules.
1. Bona fide Employer-Employee Relationship
To be eligible for a STEM extension, a student on STEM OPT must demonstrate a bona fide employer-employee relationship. To enforce compliance with this rule, the student must submit Form I-983, Training Plan for STEM OPT students. This form must be completed and signed by the employer. Students cannot act as their own supervisors and complete this form. So while a student can own an interest in a company, STEM OPT requires that another individual involved in the business oversee their work and complete and sign Form I-983. This generally requires careful planning to make sure that the student does not violate their STEP OPT status or that the DSO does not approve their employment for STEM extension purposes.
2. E-Verify Compliance
Businesses employing STEM OPT students must be enrolled in E-Verify, a federal system that verifies employee eligibility. For STEM OPT self-employment, this means ensuring that the business meets all E-Verify requirements and remains compliant throughout the training period. If the employing company loses its E-Verification at any time during the student’s employment, it could lead to the student violating their immigration status. You can check out my detailed video explanation of How Important E-Verification is in STEM OPT to understand how critical it is to comply with this requirement.
3. Related to Degree
Similar to OPT self-employment, the work performed during STEM OPT must be related to the student’s degree program. The training plan outlined in Form I-983 must clearly demonstrate how the role is related to the student’s academic background and career goals.
4. Compensation
To qualify for STEM OPT extension, students must be compensated. This generally means the student must be on a payroll. While equity compensation can be part of the compensation package, it requires careful planning to determine how to best structure compensation that combines salary and equity components. The rule requires that F-1 students on STEM OPT be paid commensurate with what similarly situated U.S. workers are paid. This means volunteer work or unpaid internships generally do not qualify.
5. Training Plan
Form I-983, Training Plan for STEM OPT Students, is an additional key requirement with which students must comply. The training plan should outline how the job directly relates to the student’s degree, the specific skills and knowledge they will gain and how their employer will provide training, supervision and mentorship. Both the student and employer must sign the form and the student is responsible for submitting it to their Designated School Official (DSO) before their STEM OPT extension can be approved.
6. 20 hours per week Requirement
Under the STEM OPT extension, students must work at least 20 hours per week in a position that is directly related to their STEM degree field. While full-time employment is not required, working less than 20 hours per week would violate the STEM OPT rules. If, for any reason, the student cannot meet the 20 hours per week requirement, they should contact their Designated School Official (DSO) to develop a strategy.
For additional information on the STEM OPT’s 20-hour per week requirement and unemployment during STEM OPT check out my video on the STEM OPT 150-Day Unemployment Rule. I’ll walk you through its implications and the steps you need to stay compliant.
Starting an LLC on OPT: Is It Possible?
One of the most common questions among entrepreneurial students is: Can OPT be self-employed through an LLC? Starting an LLC on OPT is possible. However, it is essential to consider the rules and regulations of F-1 OPT self-employment. LLC formation is often the preferred choice of F-1 students pursuing self-employment. Here’s why:
Benefits of an LLC
An LLC, or Limited Liability Company, offers several advantages, including personal liability protection, tax flexibility, and straightforward management. For students on F-1 OPT self-employment, these benefits make LLCs an attractive option for structuring their businesses. Please note, whether an LLC is the best option for your particular case depends on numerous considerations. While an LLC is a great option for many individuals starting a small business or startup in the United States, it is not always the best entity choice.
For startups seeking to raise venture capital a corporation will likely be a better option. Similarly, if during your STEM extension period, you wish to be employed by a company in which you hold ownership interest, a corporation may be a better option because it will simplify payroll processes, as multi-member LLCs are taxed as partnerships by default and partners in a partnership do not receive W-2s.
After helping foreign nationals start businesses and form companies in the United States for a decade, I have learned that there are numerous considerations before deciding whether an LLC is the best option for your particular case. I recommend obtaining advice from an experienced advisor who understands the startup, tax, and immigration implications of your case.
By properly forming an LLC, students can comply with the business licenses requirement and operate with confidence under self-employment OPT.
Freelancing and Contract Work on OPT
Freelancing is an attractive option for F-1 students who want to explore self-employment OPT without committing to traditional employment. Many seek advice on how to start freelancing on F-1 OPT and whether an F-1 student can work as an independent contractor on OPT. Both are possible if the work aligns with the student’s degree program. For example, a journalism graduate should be able to freelance as a writer, producing articles for clients. Similarly, a software engineering student could work as an independent contractor, developing apps or software for companies. Working as a contractor, often called 1099 employment, is permitted during your initial OPT period. As such, most freelancing work related to your degree program should be permitted employment. To be sure, always check with your DSO.
Some students prefer to engage in their freelancing work through F-1 OPT self-employment. In these cases, instead of contracting as an individual for each project, the student will form a company and contract through that company. This type of activity is referred to as a “service” provided by a company instead of “freelancing,” although the actual work performed is quite similar. One advantage of F-1 OPT self-employment vs. freelancing is that the student does not have to list each and every contract independently in SEVP. To comply with OPT rules, a student must report all employment, including contract work in SEVP. If you are working on numerous short-term projects or several projects at the same time, this reporting requirement may become onerous. If you form a company and all projects are contracted through that company, then you should only need to report employment for your company. As always, students should double-check with their DSO. However, this is a strategy we have seen employed by many students.
Please don’t forget that even though you are providing services through your company and that may seem like freelancing, if you are going to engage in F-1 OPT self-employment, you have to comply with all relevant rules. You cannot form a business and report self-employment in SEVP and later claim to have been “freelancing”. Compliance is critical.
If you are confused about F-1 OPT Reporting requirements and what Types of OPT Employment qualify, watch my short video guides to understand the importance of OPT reporting and the employment options that meet OPT guidelines.
Challenges of Self-Employment on OPT
While F-1 self-employment offers independence and flexibility, it also presents distinct challenges that students must manage carefully. One significant hurdle is immigration compliance. Students pursuing F-1 OPT self-employment must ensure that their business satisfies all requirements. Failure to comply with all requirements could be deemed a violation of your F-1 status, which could have significant negative immigration consequences in the future. If you are unsure whether your activities or company are in compliance, I strongly advise speaking with a professional who can evaluate your case. Over the years, I have spoken with so many F-1 students who are considering or already engaged in OPT self-employment. I have helped form companies, clean up corporate records, advise on record-keeping practices and other strategies to ensure compliance and mitigate risks. It is absolutely vital if you are going to pursue self-employment that you and your business activities are compliant with the OPT self-employed requirements.
Unfortunately, the OPT period is short, lasting only 12 months. It often takes 12 months for a business to gain traction and to start producing revenue. At that point, the owner needs other immigration options in order to continue operating the business. I always advise anyone who wishes to continue to operate their business in the United States to develop a strategy well in advance of the expiration of their F-1 OPT period. Any change of status petitions will require careful planning and execution, which generally requires time.
Options After OPT Expires
Once the initial 12-month OPT period ends, students must transition to another type of immigration status if they wish to continue their self-employment OPT or other professional endeavors in the United States. One of the most common options is the 24-month STEM OPT extension for eligible students. This extension allows graduates in STEM fields to work in their academic field for an additional two years. However, STEM OPT self-employment is a lot more complex than the regular F-1 self-employment due to its strict requirements, including having a bona fide employer-employee relationship and compensation. Students who meet these requirements can effectively extend their entrepreneurial journey in the country, but they should carefully ensure that they meet all relevant requirements.
After their OPT period, many students transition to other non-immigrant statuses, such as the H-1B, E-2 or O-1. The H-1B status permits foreign nationals to work in specialty occupations. While H-1B sponsorship typically requires an employer petitioner, it does allow ownership of the petitioning company by the H-1B holder. Students who have established businesses through F-1 OPT self-employment may explore continuing to work for their company through the H-1B visa. In addition to the H-1B lottery, there are several critical requirements that have to be met to qualify for H-1B status for a company in which you hold an ownership interest. It is important to plan ahead and make sure a good strategy is in place that ensures compliance with all requirements.
If you want to work in the United States on a visa that could lead to a green card, check out our article on the H-1B visa, where I break down its eligibility, application process and key benefits.
Additionally, students can consider the E-2 investor visa or the O-1 extraordinary ability visa. These visas allow students to transition from self-employed OPT to managing their business ventures in the United States. To learn more about how to stay in the U.S. as an entrepreneur, watch my video discussion on how to transition from OPT Self-employed to E-2 Visa and learn how you can transition from being a student to a business owner.
Based on my experience helping numerous F-1 students who have started their own companies, plan early and apply as early as possible for a change of status or a new visa to avoid lapses in employment authorization.
Tax Implications for Self-employed OPT Holders
Although beyond the scope of this article, understanding the tax consequences associated with F-1 self-employment is critical for compliance. Generally, business owners must file tax returns for their business and report income derived from the business to the IRS and state revenue agencies. However, as an F-1 visa holder, you may be treated as a non-resident taxpayer, which could allow you to reduce your tax liability. I advise all of my clients that although law firms like ours can help develop a tax strategy, you should also retain the services of a CPA or other tax preparer who can help you make all relevant tax filings.
Generally, your company will pay income taxes on its profits – ie, your revenue minus any qualifying expenses. In this regard, keeping accurate records of your earnings and expenses is essential. Expenses such as software subscriptions, professional development courses, and business-related travel may qualify as deductions, reducing your taxable income. The tax forms you will have to file, come tax season, will depend on the exact structure of your company. For example, a single-member LLC does not, by default, file separate tax returns and instead reports its profits on Schedule C of the owner’s tax return, while corporations file Form 1120 to report their profits.
In addition to income taxes, self-employed individuals generally also have to pay FICA taxes, which are Medicare and Social Security taxes, totaling 15.3%. If you have been in F-1 status for less than 5 years, you may be eligible for an exemption from FICA taxes. You may claim this exemption by filing Form 8843.
In addition to tax payments, there are numerous compliance requirements that may impact foreign business owners in the United States. While this is definitely not an exhaustive list, there are three specific requirements I want to highlight: Form 5472, FATCA, and FBARs.
- Form 5472: This form is required to report certain transactions between a foreign-owned U.S. corporation and its foreign parent or affiliates. It ensures transparency in financial dealings and helps the IRS monitor potential tax avoidance. Failure to file Form 5472 can lead to substantial penalties, so foreign business owners must be diligent in meeting this obligation.
- FATCA (Foreign Account Tax Compliance Act): FATCA requires U.S. tax residents, including foreign business owners who satisfy residency criteria, to report their foreign financial assets if these assets exceed certain value thresholds. This includes disclosing interests in foreign bank accounts, investments, and other financial holdings held outside the United States. Foreign business owners who are U.S. tax residents must understand these obligations, as failure to file the required reports, typically Form 8938, can lead to significant penalties. Compliance is critical to avoid legal and financial consequences.
- FBARs (Foreign Bank Account Reports): These reports are mandatory for U.S. persons, including foreign business owners, who have a financial interest in or authority over foreign bank accounts with a total value exceeding $10,000 at any point in the year. Filed with the Treasury Department’s Financial Crimes Enforcement Network, on FinCEN Form 114, FBARs help the U.S. government track overseas assets and combat illicit financial activities.
Tax compliance is a critical aspect of operating a business under self-employed OPT, and staying informed about tax and compliance obligations is highly important. Our firm has extensive international tax compliance experience and we provide strategic advice to our clients that extends beyond the OPT company formation process.
Long-Term Planning for Self-employed OPT Students
Planning for the future is essential for students pursuing F-1 OPT self-employment. While the initial 12-month OPT period provides valuable time to establish a business, it’s important to think ahead about transitioning to a long-term immigration solution. Students researching how to be self-employed on OPT should explore options like the 24-month STEM OPT extension if eligible, as it provides additional time to grow your business while remaining in compliance with immigration regulations. For those pursuing STEM OPT self-employment, ensuring your business meets the necessary requirements, including the bona fide employer-employee relationship, is critical.
If you are wondering about the differences between F-1 OPT vs F-1 STEM OPT, check out my video guide for a comparison between the two.
Beyond OPT, students can consider transitioning to an H-1B visa, particularly if they’ve structured their business to comply with relevant requirements. Alternatively, entrepreneur-focused visas such as the E-2 investor visa or O-1 extraordinary ability visa provide opportunities to continue operating your business in the United States.
For students starting an LLC on OPT, planning early for these transitions can help ensure a seamless process. Consulting with an experienced immigration lawyer is invaluable for creating a roadmap that supports your entrepreneurship goals while complying with U.S. immigration laws. Long-term planning is a key component of achieving sustained success while being F-1 visa self-employed.
Conclusion
For entrepreneurial F-1 visa holders, pursuing self-employed OPT offers an unparalleled opportunity to take control of their career paths while gaining practical experience in the United States. Whether starting an LLC on OPT or a corporation, the flexibility and independence of F-1 OPT self-employment empower students to apply their academic training in innovative ways. Understanding self-employment OPT requirements is essential to staying compliant with immigration rules while building a sustainable and successful business.
For students on STEM extensions, STEM OPT self-employment provides additional opportunities to develop a business, as long as critical requirements, such as the bona fide employer-employee relationship and compensation requirements are met. The rules governing STEM OPT self-employment are complex and should be approached carefully with guidance from an experienced advisor. The key takeaway from this article should be that throughout the OPT period, you must adhere to OPT self-employed immigration rules to maintain your immigration status. By keeping thorough documentation and remaining actively engaged in your business, F-1 visa self-employment can become a pathway to personal and professional growth.
Long-term planning is critical for students looking to transition from self-employment OPT to other visa options, such as the H-1B, E-2 or O-1. With strategic preparation and a focus on compliance, F-1 OPT self-employment can lead to a thriving business and a lasting impact on your career, as well as a great first step in your U.S. employment-based immigration journey. Whether starting a service business or scaling a startup, self-employed OPT is not just a way to fulfill OPT requirements. It can be a foundation for future success in the United States.
Our OPT Self-Employment Services
Are you exploring self-employment OPT or seeking guidance on structuring your business under F-1 visa regulations? At Pandev Law, LLC, we have extensive experience assisting F-1 visa holders in navigating the complexities of F-1 OPT self-employment. I have helped over a thousand F-1 students launch companies in the United States, many of whom have since transitioned to other immigration statuses. We have numerous clients who started their entrepreneurship journey through OPT self-employment and have since built incredibly successful businesses and raised significant capital from major institutions. Our experienced team can help you establish your business, ensure compliance with the OPT self-employed immigration requirements, and provide strategic guidance tailored to your unique situation. Whether you are planning to launch a startup corporation or are thinking of starting an LLC on OPT, we have the expertise to support your entrepreneurial journey.
If you’d like to schedule a consultation with me, Adrian Pandev, visit our website and click on “Schedule a Consultation”. You can also reach us via email at [email protected] or call us at (646) 354-3780. During your consultation, I will provide a thorough review of your case, including tailored recommendations for maintaining compliance with self-employment OPT regulations and developing a company formation strategy.
I would love to help you turn your entrepreneurial aspirations into reality while staying compliant with F-1 OPT self-employed guidelines.
Disclaimer: This blog article is provided by Pandev Law, LLC for general educational and informational purposes only. Although this article discusses general legal issues, it does not constitute legal advice nor does it establish an attorney-client relationship. No reader should act or refrain from acting on the basis of any information presented in this article, or elsewhere on this website, without seeking the advice of appropriate legal counsel or other professional counsel licensed in the relevant jurisdiction. Pandev Law, LLC expressly disclaims any and all liability with respect to any actions taken, or not taken, based on any content of this article or website. This blog article may constitute attorney advertising. Prior results do not guarantee a similar outcome.
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