You Earned It, You Keep It

Summary#

This bill would change how Social Security benefits and payroll taxes are treated after enactment. It would repeal the rule that requires some Social Security benefits to be included in a recipient's federal taxable income. The bill also directs the Treasury to make annual appropriations to Social Security and related trust funds equal to any reduction in transfers to those funds caused by that repeal.

Starting after 2025, the bill changes what counts as wages and self-employment income for Social Security payroll taxes (OASDI). In years when the Social Security contribution and benefit base is less than $250,000, employers and employees would not pay OASDI payroll taxes on pay that falls above the contribution and benefit base up to $250,000. Pay above $250,000 would again be counted for payroll tax purposes. The bill adds rules for multiple employers so workers who have pay from more than one employer may owe an additional tax to reconcile underwithheld amounts. It also changes how self-employment income is counted for OASDI and updates some railroad retirement tax references.

The bill adds a small benefit credit for very high earners by including 2 percent of "excess average indexed monthly earnings" (earnings above the higher of $250,000 or the contribution and benefit base) in the primary insurance amount formula for calculating Social Security benefits for people who first become eligible after 2025. It includes conforming changes to related Social Security provisions, adjusts the national average wage index calculation after 2025, and says the benefit amounts used to determine eligibility for SSI, Medicaid, and CHIP will be held harmless (capped) at pre-enactment levels for those programs.

What it means for you#

  • If you receive Social Security benefits, those benefits would no longer be included in your federal gross income for years after this law takes effect. That means Social Security payments would not be taxed as income under the rule the bill repeals.
  • If you earn wages between the Social Security contribution and benefit base and $250,000 in a year when the contribution and benefit base is less than $250,000, that middle range of earnings would not be subject to OASDI payroll taxes. Earnings above $250,000 would again be included.
  • Self-employed people would see changes to the amount of net earnings subject to Social Security (OASDI) tax, based on a new formula that accounts for wages and a $250,000 threshold after 2025.
  • Workers with multiple employers may have to reconcile payroll taxes and could owe an additional tax if too little was withheld by their employers during the year.
  • People who first become eligible for Social Security benefits after 2025 and who had very high earnings may receive a small additional benefit amount based on earnings above $250,000.
  • For SSI, Medicaid, and CHIP eligibility, the bill treats a person's Social Security benefit amount as no greater than the amount that would have applied before this bill so those program eligibility and benefit levels are not reduced by higher Social Security benefits.

Expenses#

  • The bill includes a direct appropriation provision: the Treasury would appropriate, for each fiscal year, to each Social Security fund (and related funds) an amount equal to the reduction in transfers to that fund caused by repealing taxable treatment of Social Security benefits. This is intended to keep those trust funds "harmless."
  • No publicly available information in the bill text gives a dollar estimate of total federal costs or savings beyond the instruction to appropriate amounts equal to the reduction in transfers.

Proponents' View#

No publicly available information in the bill text about supporters' stated arguments or rationale beyond the list of sponsors and committee referrals.

Opponents' View#

No publicly available information in the bill text about opponents' stated arguments or concerns.