You Earned It, You Keep It Act
- Sponsor
- Rep. Craig, Angie [D-MN-2]
- Committees
- Energy and Commerce Committee (primary)
- Last action
- Apr 14, 2025
Bottom line
The bill eliminates federal income tax on Social Security benefits, protects the trust funds with general revenue transfers, and increases payroll taxes on very high earners while providing them a small benefit increase.
What it actually does
This bill repeals the federal income taxation of Social Security benefits for all beneficiaries. To offset the revenue loss to the Social Security Trust Funds, it mandates transfers from the general Treasury. Additionally, it modifies the Social Security payroll tax structure by reintroducing a tax on earnings above $250,000, while maintaining a 'donut hole' where earnings between the current contribution and benefit base and $250,000 remain untaxed. It also includes a modest increase in future Social Security benefits for those high earners whose wages above $250,000 are now subject to tax.
Proponents argue
Supporters argue that Social Security benefits are earned income and should not be taxed, especially for retirees who have already paid taxes on their contributions. They contend that increasing the wage base for high earners ensures the solvency of the trust funds and makes the system more progressive, while the general revenue transfer guarantees that the repeal of the tax does not harm the program's financial health.
Opponents contend
Opponents might argue that repealing the taxation of benefits without fully offsetting the cost through dedicated revenue could exacerbate the national debt if the general revenue transfer is insufficient or unsustainable. Some may also oppose increasing the payroll tax burden on high earners, viewing it as a disincentive for economic growth or a form of additional taxation, and question the complexity of the 'donut hole' design.
The bill is relatively short but contains significant technical changes to tax and Social Security law, requiring careful reading to understand its full implications.
Section 2(a)
Repeal of Inclusion in Gross Income of Social Security Benefits
This provision amends Section 86 of the Internal Revenue Code of 1986 to state that the section, which currently requires a portion of Social Security benefits to be included in gross income for tax purposes, will no longer apply to any taxable year beginning after the date of enactment. This effectively eliminates federal income tax on Social Security benefits for all recipients.
Supporters argue
Supporters argue that retirees have already paid taxes on their earnings throughout their careers, and taxing their Social Security benefits constitutes unfair double taxation. This repeal would provide financial relief to seniors and ensure they keep the benefits they earned.
Critics contend
Critics might argue that taxing Social Security benefits, particularly for higher-income retirees, helps fund the program and contributes to fiscal responsibility. Repealing this tax without a robust, sustainable funding mechanism could strain federal finances or the Social Security Trust Funds.
Tradeoffs
The tradeoff is between providing tax relief to seniors and maintaining federal revenue, which is addressed by the subsequent trust fund protection and revenue-generating provisions.
Section 2(b)
General Revenue Transfer to Social Security Trust Funds
This provision appropriates funds from the general Treasury to the Social Security Act funds (including the Federal Hospital Insurance Trust Fund) and the Railroad Retirement Act of 1974 funds. The amount appropriated for each fiscal year is equal to the reduction in transfers to these funds caused by the repeal of Social Security benefit taxation. This mechanism is intended to ensure that the repeal of the tax does not negatively impact the solvency or funding of these trust funds.
Section 3(a) and 3(b)
Modification of Social Security Wage Base
This section repeals the current cap on wages subject to Social Security taxes (Section 3121(a)(1) of the IRC). It then reintroduces a new limitation: for wages between the current contribution and benefit base (CBB) and $250,000, no Social Security tax is applied (a 'donut hole'). However, wages above $250,000 are again subject to Social Security taxes. Similar rules apply to self-employment income. This change takes effect for calendar years after 2025.
Section 3(c)
Tax on Wages from Multiple Employers Exceeding $250,000
This section introduces a new tax (Section 3103 of the IRC) for employees who receive wages from multiple employers during a calendar year, and whose aggregate wages exceed $250,000. The tax is equal to the difference between the Social Security tax that would have been imposed if all wages came from one employer and the aggregate tax actually withheld. This ensures that the $250,000 wage base applies to an individual's total earnings, not just per employer, and clarifies how overpayments are handled for tax credit purposes.
Section 4
Inclusion of Excess Earnings in Primary Insurance Amount (PIA) Calculation
This section amends the Social Security Act to include 'excess average indexed monthly earnings' in the calculation of an individual's Primary Insurance Amount (PIA). Specifically, it adds 2% of an individual's excess average indexed monthly earnings (earnings above $250,000 or the CBB, whichever is higher, after 2025) to the PIA formula. This means that individuals who pay Social Security taxes on earnings above $250,000 will receive a corresponding (though small) increase in their future Social Security benefits.
Section 4(e)
Protection for Means-Tested Program Beneficiaries
This provision states that for the purpose of determining eligibility for and the amount of benefits under means-tested programs like Supplemental Security Income (SSI), Medicaid, and CHIP, an individual's Social Security benefit will be 'deemed not to exceed the amount of the benefit that would be determined for such individual under such title as in effect on the day before the date of the enactment of this Act.' This means that any increase in Social Security benefits due to the new formula for high earners will not cause them to lose eligibility for or have their benefits reduced in these other assistance programs.
This subsection amends the Social Security Act to increase the national average wage index (NAWI) by specific percentages (0.7% for 2026-2030, 0.8% for 2032-2036, 0.9% for after 2038). The NAWI is used to index past earnings for benefit calculations and to adjust the contribution and benefit base.
Section 3(d)
Why it matters:This is standard legislative practice for technical adjustments to indexing formulas, which are often complex and placed in specific sections of the law. It's not necessarily evasive.
Case for: Proponents would argue this adjustment is a technical measure to ensure the long-term financial stability of the Social Security program by subtly increasing the wage base and potentially future benefits over time, aligning with the goal of strengthening the trust funds.
Case against: Critics might argue that such an adjustment, while seemingly small, could have significant long-term fiscal implications or could be seen as a hidden way to increase the tax burden or reduce benefits (depending on how it interacts with other formulas) without direct public debate.
Estimated impact: This would subtly increase the contribution and benefit base and potentially future benefits over the long term, contributing to the financial health of the system.
This clause clarifies that for the purpose of the new $250,000 wage limitation, 'remuneration' does not include remuneration referred to in any paragraph of subsection (a) of Section 3121. This refers to various exclusions from 'wages' for FICA purposes, such as payments for certain services, certain fringe benefits, etc.
Section 3(a)(1)(B) - new IRC Section 3121(aa)(3)
Why it matters:This is standard legislative drafting to ensure consistency with existing tax law definitions and avoid unintended consequences. It's not evasive.
Case for: Proponents would argue this ensures that the new wage base rules correctly interact with existing exclusions from FICA wages, preventing unintended taxation of non-wage benefits or services that are currently exempt.
Case against: No specific opposition is typically raised against such technical conforming definitions, as they are necessary for legal clarity.
Estimated impact: Ensures the new payroll tax structure applies only to what is currently considered 'wages' for FICA purposes, preventing an expansion of the tax base beyond the intended scope.