You Earned It, You Keep It Act
You Earned It, You Keep It Act (S. 2716, introduced in the 119th Congress) would fundamentally change how Social Security is taxed and how benefits are calculated. The bill repeals the current rule that requires many Social Security benefits to be included in a taxpayer’s gross income for federal income tax purposes, effective for taxable years beginning after enactment. It also includes a mechanism to compensate Social Security and Railroad Retirement funds for the revenue loss this repeal would cause. In addition, the bill makes sweeping changes to the Social Security payroll tax base and benefit formulas. It sets up a national wage base framework that would limit or shape what income is taxed for OASDI purposes (with various rules for multi-employer scenarios and for the railroad retirement system), modifies how earnings above certain thresholds are treated, and tightens how earnings from multiple employers are taxed. It also modifies how Social Security benefits themselves are calculated for individuals who become eligible after 2025, by adding a new “excess earnings” component to the benefit formula. Importantly, many of these changes would apply only to people who first become eligible for Social Security after 2025; current beneficiaries would generally be unaffected. The act also includes protections to ensure SSI, Medicaid, CHIP, and related programs aren’t impacted for current recipients. Potential impact: - Retirees and Social Security beneficiaries would see changes in whether benefits are taxed and in how benefits are calculated for new beneficiaries. - High earners and workers with income above certain thresholds would face new or adjusted payroll tax rules and reporting requirements, especially in contexts with multiple employers. - The Social Security trust funds could be affected in the short term by revenue changes, leading to appropriations to offset losses for specific funds as described in the bill.
Key Points
- 1Repeal of tax inclusion of Social Security benefits: The bill adds a new subsection to Section 86 stating that this section “shall not apply” to any taxable year beginning after enactment. In short, Social Security benefits would no longer be taxable as part of gross income for federal income taxes.
- 2Trust fund offset: To offset the revenue loss from excluding Social Security benefits from gross income, the bill provides appropriations to the Social Security and Railroad Retirement funds equal to the reduction in transfers caused by the repeal.
- 3Reworking the wage base and OASDI taxes after 2025:
- 4- The bill repeals a current wage-base limitation and introduces a new rule restricting the amount of wages treated as subject to certain payroll taxes based on a $250,000 threshold, with a complex mechanism that interacts with the contribution and benefit base and “successor” employers.
- 5- It creates a new Special Rule for remuneration from multiple employers (Sec. 3103) to determine OASDI taxation when wages come from more than one employer in a year, including how credits and coordination with other taxes work.
- 6- The Social Security Act would be amended to reflect the $250,000 threshold in determining applicability of certain tax rules and protections for earnings above that threshold.
- 7National Average Wage Index adjustments: The bill would, after 2025, adjust the National Average Wage Index by specified annual increases (0.7% for 2026–2030, 0.8% for 2032–2036, and 0.9% thereafter).
- 8Changes to the Social Security benefit formula for high earners: Section 4 would add 2% of an individual’s “excess average indexed monthly earnings” to the calculation of primary insurance amounts (PIA), effectively modifying benefits for those with earnings above a defined threshold. The definition of “excess” earnings is tied to a new framework that uses a threshold (including a $250,000 reference point) and adjusts the calculation of wages and self-employment income used in benefit computations.
- 9Effective dates and scope:
- 10- Most changes to tax and wage-base provisions apply to calendar years after 2025.
- 11- The changes to self-employment income and related Social Security Act amendments apply to taxable years beginning after December 31, 2025.
- 12- The benefit formula changes apply to individuals who initially become eligible after 2025 (old rules remain for those who were already eligible before that date).
- 13- Provisions related to SSI/Medicaid/CHIP are designed to protect beneficiaries as of enactment.